The government on Wednesday relaxed external commercial borrowing (ECB) norms significantly in a number of areas — including corporate bonds, low-cost housing and refinancing of rupee loans by infrastructure and manufacturing sectors — and permitted the Small Industrial Development Bank of India (Sidbi) to access ECB.
The high-level committee on external commercial borrowings in a meeting on Wednesday decided that Sidbi will be permitted to access ECBs for on-lending to the micro, small and medium enterprises sector, subject to certain conditions.
Finance ministry said in a release the conditions will be finalised in consultation with the Reserve Bank of India.
The panel also decided eligible non-resident entities will be allowed to credit enhance the issue of rupee bonds by companies.
The minimum maturity period of such bonds has been reduced from seven years to three years.
Further, foreign institutional investors (FIIs) will be permitted to invest up to $5 billion in these bonds within the overall corporate bond limit of $45 billion. With regard to the budget announcement of allowing ECBs in low-cost housing projects, the committee has decided that entities such as National Housing Bank (NHB) and housing finance companies (HFCs) will be included as eligible borrowers for financing such low-cost housing projects.
With these measures, re-financing of buyer’s credit for import of capital goods in the infrastructure sector will also be placed under automatic route, subject to certain conditions, and maturity of such buyer’s credit would be increased to a maximum of five years.
In June 2012, a new scheme allowed companies in the infrastructure and manufacturing sectors to re-finance their rupee loans through ECBs, subject to the condition that their ECB liabilities are extinguished from their future forex earnings.
The committee has now decided to enhance the limit for ECBs by such companies from 50 per cent to 75 per cent of the average forex earnings realised during the past three financial years or 50 per cent of the highest forex earnings recorded in any of the last three years, whichever is higher.
It has also been decided to include special purpose vehicles of companies who are in existence for at least one year under the ambit of this scheme.