RBI empowers banks on end-use of ECB funds

Banks say move streamlines foreign fund-raising, removes administrative flaws

Banks will now have greater say with respect to Indian companies raising external commercial borrowings (ECBs). The Reserve Bank of India (RBI) has empowered banks to make changes in the end-use of money raised through ECBs, without routing the request through the regulator.

Banks can now approve a firm’s request to change the final use of offshore commercial borrowings under the automatic route. Banks are viewing it as streamlining of the foreign fund-raising procedure and a removal of administrative flaws.

“The step shows RBI is now more comfortable in delegating powers to the authorised dealers (banks). The action by the regulator will help in fine-tuning the operational procedure for ECBs," said Moses Harding, head of global research, IndusInd Bank.

Currently, companies can raise up to $750 million under the automatic route.

Earlier, their requests had to be referred by the authorised dealers to RBI. Funds raised under the approval route will still have to be referred to RBI’s department of foreign exchange. ECBs beyond $750 million are approved by RBI case by case.

The regulator has allowed banks to directly approach it for the cancellation of the loan registration number (LRN) used to avail overseas borrowings, both under the automatic and approval routes. The LRN can be cancelled by banks only if there has been no draw-down on it.

Bankers said it was a continuation of delegation of authority by the central bank, which would save time and make the procedure simpler. "Banks are managing long-term risks. ECBs are of a much shorter duration, which can be managed by the lenders efficiently," said Harding.

Economists feel the step has been taken to enhance dollar liquidity and ease downward pressure on the rupee. "The step should be viewed in conjunction with several others to enhance dollar supplies to curb rupee volatility," said Madan Sabnavis, chief economist, CARE.

Though the power will now rest with the banks, the changes have to be reported to RBI. "That will ensure parity in the system," Sabnavis said.

The central bank has taken multiple steps in the past few months to increase dollar availability.

"These steps are more in nature of a decentralisation of process. They provide relief to those intending to raise funds," said Joel Akilan, chief representative (India) with BBVA, the second largest lender of Spain.