ECBs are no longer attractive, says JP Morgan Chase Bank India CEO

JP Morgan Chase Bank India CEO Pranav Chawda said external commercial borrowings are losing attractiveness for Indian firms as rising hedging costs and currency risks reduce the benefit of overseas funding.

Written by FE Bureau

May 26, 2026 21:17 IST

India Inc’s ECB borrowings fell 30% in FY26 as companies increasingly preferred domestic rupee funding over overseas loans amid geopolitical uncertainty and elevated global interest rates. The proposal aims to encourage distributors to save and invest for the long term. While the regulator has sought industry feedback on the potential conflict of interest arising from AMCs paying commissions through units of their own schemes, industry experts highlighted several operational and structural challenges. Aditya Agarwal, co-founder of Wealthy.in, said the proposal could create liquidity and working-capital pressures for smaller mutual fund distributors (MFDs) if the allocation of units is made mandatory. He also flagged concerns over disproportionate exposure to schemes of specific fund houses and the possibility of widening the gap between large national distributors and independent MFDs. "If AMCs introduce varying structures, tiered perks, or distinct wealth-accumulation benefits within their unit-payout models, it could create an aggressive commercial battleground for distributor mindshare,” he said Also, independent retail MFDs may find it difficult to maintain strict neutrality, as the financial incentive to optimise their own long-term, unit-linked net worth could subtly compromise objective, client-first product recommendations. While acknowledging that the proposal could help distributors build long-term wealth, Agarwal suggested that receiving commissions in the form of units should remain optional. Chokkalingam Palaniappan, a Chennai-based distributor, added that the proposal could help many small independent distributors save for their long-term financial goals. He added that it may also discourage distributors from projecting wealth accumulated through other financial products as mutual fund returns on social media platforms. Palaniappan suggested that distributors should be allowed to choose the scheme in which their trail commission is invested, based on their risk appetite and investment objectives. Agarwal also sought clear joint guidance from tax authorities on issues such as taxation timing, tax deducted at source (TDS), valuation methodology, capital gains treatment and accounting standards to prevent confusion and disputes. In addition, tracking commissions received as mutual fund units, redemption values, capital gains and accounting treatment could become cumbersome for smaller distributors lacking sophisticated systems, he said. A senior mutual fund distributor, who did not wish to be identified, said the proposal could improve savings among distributors and align their investments with the products they recommend to clients. However, he cautioned that complications could arise if distributors become locked into schemes during periods of market volatility or if the scheme does not match their personal investment goals and risk profile. "While the intent is positive, flexibility for distributors will be critical to ensure that the proposal does not create unintended consequences," he said.

External commercial borrowings are no longer attractive as they used to be, Pranav Chawda, CEO JP Morgan Chase Bank India, said in a panel discussion in the CareEdge Debt Market Summit on Tuesday, adding that ECB rates are driven by global rates.

“..less from the investors (perspective) or the banks who are offering ECBs but more from a borrower’s point of view today, ECBs are no longer looking as attractive as it was in the past. And most of the borrowers are now not looking at ECBs and comparing the headline coupon rate,” he said.

He added that they’re pricing in everything now — hedging costs, currency risk and the opportunity cost. For an exporter, if domestic rupee funding is roughly the same cost as an ECB, it’s preferable to take a dollar forward premium instead of borrowing overseas, he said.

According to the latest data by the Reserve Bank of India (RBI), India Inc’s ECBs were down 30% to $ 42.9 billion in FY26 from $ 61.2 billion in FY25. The sharp decline is largely driven by higher hedging costs amid year‑long geopolitical uncertainty, including tariff tensions and the West Asia war.

Chawda noted that pricing is highly competitive and hedging costs are currently unattractive.

Therefore, he said that firms will first dip into the onshore market and turn to offshore ECBs only when local funding isn’t feasible. They’ll consider ECBs if they have dollar-denominated needs—such as overseas acquisitions, a dollarized balance sheet, global operations—or when the intended use cannot be financed via local. In those situations, overseas borrowing becomes a practical option, he added.

This article was first uploaded on May twenty-six, twenty twenty-six, at seventeen minutes past nine in the night.