The Reserve Bank of India (RBI) today further liberalised the guidelines for non-government organisations (NGOs) raising external commercial borrowings (ECB) and housing finance companies going for foreign currency convertible bonds (FCCB). | |
| NGOs engaged in micro finance activities meanwhile will be permitted to raise ECBs up to $ 5 million during a financial year for permitted end-use, under the automatic route. The revised guidelines also cap the maximum an entity can raise in a single year at $ 500 million. |
| |
| The new rules will however, enable Housing Development Finance Corporation's (HDFC) application for raising $ 500 million through FCCB to be processed under the approval route. |
| |
| What's new in the guidelines is that individual foreign lenders like non reisdent Indians lending towards ECBs will have to ensure a minimum direct equity holding of 25 per cent in the borrowing entity. |
| |
| In the case of a company raising more than $ 5 million, the minimum equity holding by the lender would need to be at 25 per cent, plus ensuring the debt-equity ratio not exceeding 4:1(i.e. the proposed ECB not exceeding four times the direct foreign equity holding). |
| |
| Bankers said this would be a means of verifying the credentials of third party lenders, and would not apply to banks. |
| |
| In the event of a borrower raising ECB up to $ 20 million, the minimum average maturity has to be that of three years. In the case of ECB of over $ 20 million and up to the maximum allowed amount of $ 500 million, the minimum average maturity of the borrowing has to be five years. |
| |
| The RBI has also capped the coupon rates on the ECBs at 200 basis points above the 6-month Libor in the case of ECBs of three to five year maturity and 350 basis points above Libor for ECBs of over 5 year maturity. |
| |
| ECBs up to $ 20 million can have call/put option provided the minimum average maturity of three years is complied before exercising the option. |
| |
| The amended ECB policy comes into force immediately, and necessary amendments to the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000 would be issued separately, stated RBI. |
| |
| Regarding housing finance companies (HFCs) wanting to raise FCCBs, the RBI stated that they must have a minimum net worth of Rs 500 crore over the past three years, be listed on either of the national stock exchanges (BSE or NSE) and must go for a minimum FCCB size of $ 100 million. |
| |
| At the same time, the HFC should also submit the purpose for the funds. HDFC has a net worth of over Rs 3,000 crore, and wishes to raise the funds to meet its core business activity of home loans. |
| |
| HFCs can raise FCCBs after getting RBI approval. |
| |
| The RBI had initially certain concerns over NGOs raising funds in terms of whether the borrower was genuine, whether the funds were being utilised for genuine purpose, the credentials of the overseas lender of ECB and the systemic implications of such ECB flows. |
| |
| In addressing these issues, the central bank has limited non banking finance companies to raise ECB with a minimum average maturity period of 5 years from multilateral financial institutions, reputable regional financial institutions, official export credit agencies and international banks. |
| |
| The funds are to be earmarked for financing import of infrastructure equipment for leasing to infrastructure projects. |
| |
|
| |
