Reserve Bank of India (RBI) data for Q1 FY26 (April–June 2025) reveals a noteworthy jump in net External Commercial Borrowings (ECBs), from $2.8 billion a year ago to $4.6 billion. This surge raises key questions: What is driving this inflow? How are borrowing patterns evolving across sectors? And what does this signify for India’s external financing mix and corporate leverage?

In this article, we dissect the RBI’s latest findings, compare them with broader capital flow trends, provide sectoral insights, and assess expert perspectives on risks and policy considerations.

Q1 FY26 ECB Snapshot: A Mixed Flow Picture

RBI’s monthly bulletin shows that net ECB inflows surged to $4.6 billion in Q1 FY26, up from $2.8 billion in Q1 FY25. Interestingly, ECB registrations moderated to $9.1 billion, down from $11.1 billion in the same quarter last year, pointing to stronger inflows relative to outflows despite slower uptake.

On a monthly breakdown: June inflows dipped sharply to $0.2 billion, compared to $1.2 billion in May; ECB registration counts also varied, 113 filings in June worth $3.5 billion, versus 100 in May totalling $2.73 billion and 125 a year ago worth $2.81 billion.

Sectoral Patterns and Pricing Trends

Borrowing intent shows divergent trends across sectors:

Manufacturing saw growth: ECB registrations rose to $954 million in June 2025, from $603 million a year earlier.
Infrastructure lead: filings more than doubled, reaching $1.81 billion versus $808 million in June 2024.
Services sector moderated: fell to $19 million, down from $37 million.
NBFCs pulled back: registrations dropped to $682 million from $1.31 billion.

In terms of cost:

Floating-rate ECBs: Weighted average margin increased to 1.70% in June (from 1.46% in May and 1.36% a year ago).
Fixed-rate ECBs: Offered between 0–10.50%, slightly improved from 0–11.00% seen in June 2024.

Q1 FY26 vs. Q1 FY25 ECB Overview

Indicator	Apr–Jun FY25	Apr–Jun FY26	Change
Net ECB Inflows	$2.8 bn	$4.6 bn	Increased $1.8 bn
ECB Registrations	$11.1 bn	$9.1 bn	Decreased $2 bn
June Net Inflow (Monthly)	—	$0.2 bn	Decreased from May’s $1.2 bn
Manufacturing Filings (June)	$603 m	$954 m	Decreased 58%
Infrastructure Filings (June)	$808 m	$1.81 bn	Increased over 2×

Table Overview: Net inflows grew significantly despite subdued registration volumes, suggesting lower outflow pressure. Manufacturing and infrastructure sectors emerged dominant in borrowing intent, aligning with capex revival. June’s dip, however, hints at cautious sentiment.

Capital Flows in Context: ECBs Amid Changing External Financing

While Q1 ECB inflows improved, broader capital flows tell a mixed story. India's current account shifted to a deficit of $2.4 billion (0.2% of GDP) in Q1, driven by trade gap expansion, even as services exports and remittances remained supportive. FPI flows slowed and corporate forex risk rose due to reduced hedging cover and rupee volatility.

Thus, while ECBs helped buffer the balance of payments, underlying fragilities in trade and portfolio inflows add pressure on external financing.

External Flow Comparison (Q1 FY26)

Category	Q1 FY25	Q1 FY26	Inference
Net ECB Inflows	$2.8 bn	$4.6 bn	Strengthened corporate overseas borrowing
Current Account Balance	—	–$2.4 bn (deficit)	Trade gap widening
FPI Inflows	—	Slowed	Weak equity-led capital flows
Remittances & Services	Strong	Remain healthy	Key resilience drivers

Table Overview: ECBs served as a notable counterbalance to underwhelming portfolio flows and CA pressures, though reliance on debt inflows raises longer-term sustainability questions.

Expert Viewpoint: Risks and Policy Signals

Dinesh Khara, former SBI Chairman, warns of elevated forex risk: “[Rupee] volatility has jumped significantly … India Inc.’s aggressive reliance on ECBs demands robust hedging strategies”.

Policy clarity is also pivotal. The SBI report clarifies that India’s outstanding ECB stock stood at $190.4 billion (Sept 2024)—not the exaggerated $273 billion reported elsewhere, highlighting the importance of data accuracy in market assessments.

Conclusion

The $4.6 billion net ECB inflows in Q1 FY26 signal renewed corporate access to foreign debt, particularly in manufacturing and infrastructure. However, the moderation in registration volumes, rising borrowing costs, and external account vulnerabilities underline a nuanced picture.

Going forward, firms must prioritise currency risk management, and policymakers may need to calibrate ECB norms to mitigate systemic risks—especially if current account pressures deepen. ECBs offer a lifeline but must be managed prudently in India's external financing mix.

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