External commercial borrowing (ECB) is basically a loan availed by an Indian entity from a non-resident lender. They are used widely in India to facilitate access to foreign money by Indian corporations and PSUs (public sector undertakings). Most of these loans are provided by foreign commercial banks and other institutions. In the post reform period, ECBs have emerged a major form of foreign capital like FDI and FII.
ECB is controlled by Deptt. Of economic affairs, Ministry of Finance along with Reserve bank of India. The advantage of having ECB are:
- Accessibility to large volume of funds.
- Lower interest rate as compared to domestic market makes it better source.
- Time frame for repayment is large.
- Domestic market is facing NPA problem, hence it act as a alternative source of credit.
- It is also a way of raising capital without shedding control as it is a debt instrument.
- Will help to quench the want of funds in critical sector like infrastructure.