Asset financing NBFCs can raise ECB under automatic route

The Reserve Bank of India on Monday allowed asset financing non-banking financial companies (NBFC-AFCs) to raise funds through external commercial borrowing (ECBs) under the automatic route, compared to the approval route as mandated earlier. NBFC-AFCs can now raise funds via ECB for finance of import of infrastructure equipment which would be leased to infrastructure projects.

The move is aimed at improving dollar inflow at a time when the rupee is weakening. The Indian currency has depreciated around 13 per cent against the dollar since May.

The central bank said such ECB including outstanding ECB under the automatic route, could be availed up to 75 per cent of owned funds of NBFC-AFCs, but they can raise a maximum of $200 million in each financial year. RBI has asked AFCs to hedge the currency risks in full.

If AFCs borrow more than 75 per cent of their net owned funds in ECB, they will have to take approval from RBI.

V Ravi, chief financial officer, Mahindra Finance, said "The move should be beneficial for top-rated companies like Mahindra Finance."

Umesh Revankar, managing director, Shriram Transport Finance Company, said it's a positive move and he hoped it would be beneficial for the NBFCs.

Finance Industry Development Council (FIDC) association of asset financing NBFCs had requested RBI to allow ECB fundraising if it wanted to apply stringent norms of higher tier-I capital and NPA recognition norms based on the Usha Thorat committee report.