The hedging cost has increased up to 75 basis points, they said.
NBFCs typically access overseas markets through ECB to diversify their funding and tap relatively large pools of capital at good rates.
However, the cost advantage of such borrowing depends largely on hedging costs, which protect borrowers from exchange-rate volatility.
When geopolitical risks increase, global investors tend to demand higher premiums, pushing up hedging expenses.
“With tensions persisting in West Asia, hedging costs have moved up to 50-75 basis points, increasing the landed cost of ECB. We have three approved ECBs but we are holding them back until the situation (geopolitical tensions in West Asia) normalises,” said a senior executive at a private NBFC.
Some large NBFCs that frequently tap the overseas market are among the players suspending such plans, sources said, adding that companies would continue to monitor global developments and currency movements, and might revisit overseas borrowing once hedging costs eased and market conditions became more favourable.
Industry executives said the recent spike in hedging costs had eroded the pricing benefit that foreign-currency borrowing generally offered over domestic funding.
“In the current scenario, once you factor in the hedging cost, the cost of funds becomes comparable to, or sometimes higher than, domestic borrowing rates. That reduces the incentive to immediately tap offshore markets,” said a senior executive of a large NBFC.
Market participants said companies were not cancelling ECB plans altogether but were postponing issues.
“Approvals remain valid and companies can access the market when conditions improve. Now the preference is to wait for some normalisation in geopolitical tensions and currency volatility,” said an executive at a large housing finance company.
Hesitation in tapping offshore markets is there despite the Reserve Bank of India (RBI) relaxing ECB norms.
The revised framework widens the pool of eligible borrowers and recognised lenders, raises borrowing limits, relaxes maturity restrictions, and removes the cap on the all-in-cost for certain ECB categories.
Before the conflict started, the overseas fundraising pipeline, through loans and bonds, was robust for the upcoming financial year (FY27), supported by a pickup in capacity utilisation, which could spur private capital expenditure.
Bankers project ECB volumes could increase 25-30 per cent in FY27 to as much as $65 billion from around $50 billion in FY26.
On the domestic front, fundraising in recent weeks became more challenging with several highly rated issuers withdrawing planned borrowing after investors asked for yields higher than issuers were willing to pay.
Apart from the National Bank for Agriculture and Rural Development and REC cancelling or scaling back their offers this week, Small Industries Development Bank of India had earlier scrapped a planned ₹8,000 crore bond issue on March 4.
Market participants say the trend reflects cautious investor sentiment amid global uncertainties, which have increased volatility in the market for rates. As a result, issuers are finding it difficult to raise funds, particularly shorter-tenor paper, where demand has weakened.
Activity in the primary market has become selective, with successful issues largely confined to longer-tenor bonds where long-term investors still have funds to deploy.
Traders expect bond sales to be concentrated among select public-sector undertakings and public-sector banks where pricing expectations between issuers and investors are aligned.
 "NBFC, NBFCs")