RBI eases overseas borrowing rules for local companies

The RBI said it was taking a 'more liberal approach' for long-term foreign currency borrowing

The Reserve Bank of India (RBI) on Monday put its stamp of approval on a more liberalised external commercial borrowing (ECB) norms and allowed Indian companies to raise rupee resources from overseas lenders without incurring currency risks.

The new norms will be effective 1 April, 2016.

Such rupee-denominated bonds are getting issued in large numbers and are a hit with Japanese retail investors. Once Indian companies start raising rupee resources from abroad, more such bonds will be issued and would help to make the domestic currency more internationalised.

For ECBs in foreign currency, the central bank raised the limit for small value ECBs with minimum average maturity of three years to $50 million from the existing $20 million. For ECBs of more than $50 million, the minimum maturity period should be five years, it said.

The all in cost for such ECBs has been reduced 50 basis points from what was allowed earlier. For long term ECBs though, the all in cost is 50 basis points higher. For rupee-denominated ECBs, the rate will be commensurate with the prevailing market conditions.

Apart from usual lenders like banks, such rupee resources can now be borrowed from sovereign wealth funds, pension funds and insurance companies, according to the final guidelines on ECB norms by the central bank.

The liberal approach, with fewer restrictions on end uses, and higher all-in-cost ceiling will help for, in RBI's words, "long term foreign currency borrowings as the extended term makes repayments more sustainable and minimises roll-over risks for the borrower".

Such an ECB policy as a means to attract foreign funds "will continue to be a major tool to calibrate the policy towards capital account management in response to evolving macro-economic situation," the central bank said, adding the guidelines will be reviewed after one year based on the experience and evolving macro-economic situation.