The nearly 9-10 per cent depreciation in the rupee last year has raised the cost of overseas borrowing, a bank official pointed out | Photo Credit: iStockphoto

External commercial borrowings (ECBs) declined in FY26 after peaking in the previous fiscal, reflecting a shift in borrowing patterns and weakening of the rupee.

ECB registrations in FY26 (April-February) fell to $37.5 billion from $50.1 billion in the same 11-months period in FY25, even as the number of such borrowings inched up to 1,250 from 1,220.

The moderation comes after a steady rise from $22.8 billion in FY23 to $41.5 billion in FY24 and a peak in FY25.

Sector-wise data shows that non-banking financial companies (NBFCs) remained the largest ECB borrowers in FY26 at $14.1 billion, despite a sharp decline from $21.6 billion in FY25. Corporate infrastructure borrowing stood at $11.1 billion in FY26 compared to $12 billion in FY25, while manufacturing borrowings dropped to $6.9 billion from $11.6 billion in FY25.

“I won’t say domestic demand conditions have cooled down, but companies have been borrowing more from the domestic system,” said Madan Sabnavis, Chief Economist, Bank of Baroda. He pointed to robust bank credit and bond issuances, indicating that credit demand remains intact but has shifted away from foreign sources of borrowing.

Currency movements have played a key role, he noted . “The forex risk on borrowing from the ECB market has increased…hedging costs would have again not made it worthwhile,” he said, noting that nearly 9-10 per cent depreciation in the rupee last year significantly raised the cost of overseas borrowing.

Experts said NBFCs typically dominate ECB borrowings, but they tend to switch between domestic and overseas markets depending on costs and regulations. With easing domestic conditions, many appear to have moved back to local funding.

Prof Anil Sood of the Institute for Advanced Studies in Complex Choices, attributed the moderation to a mix of global and domestic factors. “Financial investors can earn relatively higher returns in advanced economies…they don’t need to take higher risk associated with developing markets like India,” he said, adding that rupee volatility has further dampened appetite for ECBs.

Purpose-wise, on-lending or sub-lending remained the largest component at $15.2 billion in FY26, though lower than $23.2 billion in FY25. Notably, borrowings for import of capital goods nearly doubled to $4 billion, while infrastructure-related borrowings rose to $2.4 billion.

Sabnavis said this indicates continued investment activity. “That is a good sign to actually show that there is private investment,” he noted, adding that companies often tap ECBs for capital goods imports when domestic availability is limited.

Sood, however, cautioned that uncertainty may persist. “A depreciating rupee with high volatility increases the risk of borrowing in international currencies,” he said, adding that both regulators and firms are likely to remain cautious.

Published on April 29, 2026