Definition
External Commercial Borrowing (ECB)
External commercial borrowings are foreign-currency or rupee loans raised by eligible Indian companies from non-resident lenders under RBI's framework, subject to cost and end-use limits.
Indian firms tap ECBs to raise cheaper foreign funds for capex and refinancing, governed by RBI rules on minimum maturity, all-in-cost ceilings and permitted uses. ECBs are a major channel of foreign capital and affect the capital account.
Because ECBs create dollar liabilities, borrowers carry currency risk and often use cross-currency swaps as a hedge. Large unhedged ECB exposure across corporates can magnify the impact of rupee depreciation on the wider economy.
Related terms
- Currency Swap vs Cross-Currency SwapAn FX swap exchanges principal at two dates with no interim interest, while a cross-currency swap exchanges both principal and periodic interest payments in two currencies over years.
- Capital Account ConvertibilityCapital account convertibility is the freedom to convert local financial assets into foreign assets and back at market rates without restriction, which India only allows partially.
- Hedging Forex RiskHedging forex risk means using forwards, futures, options or swaps to lock in or limit the exchange-rate cost of future foreign-currency cash flows.
- Balance of Payments (BoP)The balance of payments records all economic transactions between India and the rest of the world over a period, spanning trade, services, income and capital flows.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.