India’s external commercial borrowings (ECBs) witnessed a massive jump in FY25 — climbing over fivefold to $18.7 billion, up from just $3.6 billion the previous year, according to the RBI’s Annual Report for 2024–25.
The sharp rise wasn’t a coincidence — it was driven by a perfect storm of falling global interest rates and regulatory changes at home that nudged Indian companies, especially NBFCs, to look beyond traditional funding options.
So, what sparked this borrowing spree?
In November 2023, the RBI increased the risk weights on bank lending to NBFCs, making it costlier and tougher for these firms to rely solely on domestic banks. This change pushed NBFCs to diversify their funding sources, and the global market — with its softening rates — offered just the right opportunity.
“Interest rates in India were high, while they were easing globally. So, NBFCs naturally turned to the cheaper, offshore options,” explained Madan Sabnavis, Chief Economist at Bank of Baroda.
Where’s the Money Going?
Interestingly, while this surge in foreign borrowing might suggest big plans and expansions, only 10% of the funds were actually used for new projects. The rest was mainly diverted toward:
- On-lending/sub-lending – 45.3%
- Refinancing old ECBs – 16.3%
- Working capital – 6%
So, instead of fueling new ventures, most of the funds are helping NBFCs sustain their existing operations, refinance older loans, or provide loans to others.
Why the Global Market Looks Good Right Now
What made these foreign loans so appealing was the decline in the cost of borrowing overseas. For example, the secured overnight financing rate (SOFR) — a key benchmark — has been on a steady decline since August 2024. As a result, by January 2025, the overall cost of ECBs was 129 basis points lower than the same time the year before.
“NBFCs, even those below AA rating, were able to raise funds globally — something that wasn’t easy before,” said one industry expert.
A Broader Strategy Shift
For many Indian companies, this isn’t just about saving a few percentage points in interest. It’s about reimagining how they fund growth.
“Borrowers are clearly diversifying,” said Gaura Sengupta, Chief Economist at IDFC First Bank.
“It’s not only about rates — it’s about building credibility and connections in international credit markets,” added Anitha Rangan, Economist at Equirus Securities.
Big Picture: A Resilient India Looks Outward
As the Indian economy continues to show strong resilience, companies — especially NBFCs — are becoming smarter and more strategic in their funding. With global capital becoming more accessible and affordable, India Inc. is stepping onto the global stage, not just to raise funds but to build long-term financial muscle.