ECB, FDI norms may be eased

The government and the Reserve Bank of India (RBI) are looking at easing external commercial borrowings (ECB) guidelines and foreign direct investment (FDI) norms to enhance overseas fund flows.

On ECBs, norms for which were eased earlier this year , a meeting on Monday discussed the option of putting loans up to $500 million for rupee expenditure by Indian infrastructure companies under the automatic approval route. At present, such loans need RBI approval.
  

REVERSING THE FLIGHT
(Major changes in external commercial borrowing rules this year)

SEPTEMBER 22, 2008 

* ECB limit raised from $100 million to $500 million for 
rupee expenditure for infrastructure companies 

* Upper ceiling of interest rate on ECBs raised 100 bps to
 London-inter bank offered rate plus 450 bps for loans over 7  years

OCOTBER 7, 2008

* Mining, exploration, refineries added to list of infrastructure firms allowed to borrow up to $500 million overseas for rupee expenditure

MAY 31, 2008

* Borrowers in services sector - hotels, hospitals, software firms- permitted to avail of ECBs up to $100 million for capital goods imports

As a result, sources said, the government may raise the limit for dollar borrowings for rupee expenditure, which would need RBI approval. So, if a company is borrowing, say, $750 million, it can immediately access foreign funds up to $500 million without prior permission, but will need approval for the remaining amount.

Also, the spreads for pricing ECBs with a maturity of five years and above may be widened further to accommodate the rising cost of dollar debt overseas. ECBs are priced as a spread, known as an “all-in cost ceiling”, over the London Interbank offered Rate (Libor), the global benchmark.

A proposal was also discussed to allow on-lending finance companies, especially to the infrastructure sector, to borrow overseas. This, however, will require modifying end-use norms, which currently prohibit on-lending. Many firms have reportedly sought such a relaxation.

Meanwhile, the department of industrial policy and promotion has also started a comprehensive review of FDI norms for sectors that have a ceiling or those that require Foreign Investment Promotion Board (FIPB) approval.

Sources close to the development indicated that the sectors under review are air transport services, asset reconstruction companies, broadcasting, companies investing in infrastructure and services sectors, insurance and teh print media.