Despite the regulatory easing, industry insiders note that the appetite for overseas loans remains limited. High hedging costs often exceeding 6% erode the benefits of cheaper foreign funds. Moreover, with domestic lending rates remaining relatively low and the rupee’s volatility still a concern, many firms prefer raising capital within India.
“While the RBI’s move is progressive, it may not drastically alter borrowing behavior unless global interest rates fall further,” said a senior treasury official at a major manufacturing firm. “Most Indian corporates will continue to rely on local financing given the comparative cost advantage.”
Policy Objective: Boost Capital Flows
The central bank’s decision comes amid a push to attract more foreign capital and improve liquidity for Indian businesses. The RBI expects the revised norms to make external financing smoother, particularly for infrastructure, energy, and export-oriented sectors.
The relaxation also aligns with the government’s broader goal of enhancing India’s ease of doing business and promoting the ‘Make in India’ vision by offering flexible financing options to globally ambitious firms. More details about the policy framework can be found on the official RBI website.
Experts Urge Caution on Debt Exposure
Financial analysts caution that while the new policy opens doors for diversification, it also increases exposure to foreign exchange risks. “The flexibility should not lead to excessive unhedged borrowing,” said an economist at a leading policy think tank. “Corporates must adopt prudent risk management practices to avoid future shocks.”
Past episodes of currency depreciation have underscored the potential risks of excessive foreign borrowing without adequate hedging. Analysts say the central bank’s move must be complemented by fiscal stability and a stronger currency framework to ensure long-term benefits.
Outlook: Wait and Watch
While the changes offer greater financial autonomy, experts expect a gradual pickup in ECB inflows rather than a sudden surge. Large corporations with global footprints may take advantage of the flexibility, but mid-sized firms will likely remain conservative until currency volatility stabilizes.