RBI Initiatives Expected to Strengthen External Commercial Borrowing Inflows in FY27

A recovery in India's external commercial borrowing (ECB) inflows is anticipated during FY27, supported by policy measures introduced by the Reserve Bank of India (RBI) to encourage foreign capital inflows and improve access to overseas financing, according to a recent Bank of Baroda (BoB) assessment.

ECBs remain an important funding channel for Indian corporates seeking capital from international markets. Borrowing activity under the ECB framework is generally influenced by domestic liquidity conditions, funding requirements of businesses, global interest rate trends, exchange rate movements, and borrowing costs.

The report noted that total ECB registrations, including Foreign Currency Convertible Bonds (FCCBs), declined to USD 42.9 billion in FY26, compared with USD 61.2 billion in FY25. The slowdown was attributed primarily to the depreciation of the Indian Rupee, which increased hedging expenses and reduced the relative cost advantage of overseas borrowing.

According to the assessment, the Rupee weakened by an average of 4.3% during FY26, compared with 2.1% in FY25. The extent of currency depreciation during the year was significantly sharper, reaching 9.9%, compared with 2.4% in the previous fiscal year. Higher exchange rate volatility increased currency-related risks for borrowers and impacted borrowing decisions.

A substantial decline in overseas borrowing by Non-Banking Financial Companies (NBFCs) also contributed to the overall moderation in ECB registrations. NBFCs continued to remain the largest participants in the ECB market; however, their borrowing fell to USD 16.8 billion in FY26 from USD 27.3 billion in FY25. This reduction accounted for a significant portion of the overall decline in ECB activity.

The manufacturing sector also recorded lower overseas fundraising during the year. ECB registrations by manufacturing companies declined to USD 7.3 billion in FY26, compared with USD 13.9 billion in FY25, indicating reduced reliance on external borrowing amid changing financial conditions.

The report further highlighted that the interest rate differential between India and the United States narrowed to approximately 150 basis points (bps) in FY26, considerably below the historical average range of 300–400 bps. The reduced rate advantage made foreign borrowing relatively less attractive for Indian entities.

Looking ahead, RBI's measures aimed at facilitating overseas borrowings are expected to improve ECB activity. In particular, the dollar-rupee swap facility introduced for public sector borrowers is expected to reduce currency exposure and lower hedging costs. Public sector undertakings (PSUs), which account for roughly 15–20% of overall ECB registrations, are viewed as having considerable potential to increase participation in overseas borrowing markets.

The report expects ECB inflows to strengthen during FY27. Increased foreign borrowings, together with other RBI initiatives designed to attract overseas capital, could help mitigate pressures arising from a wider current account deficit (CAD) and support the accumulation of India's foreign exchange reserves during the fiscal year.