RBI nod no longer needed for cut in sanctioned ECB limit

Simplifying norms for overseas borrowers, the Reserve Bank of India (RBI) today said they will no longer require its approval to raise an amount lesser than sanctioned ECB as the power to authorise the same has been delegated to banks.

As per the extant ECB procedures, requests for reduction in the amount of ECB, changes in the drawdown schedule and reduction in the all-in-cost of the ECB after obtaining the loan registration number (LRN) is required to be referred by the bank concerned to the RBI for necessary approval.

"As a measure of simplification of existing procedures, it has been decided to delegate powers to the designated AD category-I banks to approve... Requests from ECB borrowers for reduction in loan amount in respect of ECBs availed under the automatic route," the RBI said in a circular.

The step comes at that time when more and more companies are resorting to external borrowings amid high interest rates in the domestic economy,

India Inc raised over $4.46 billion from overseas markets in December 2011, the latest month for which data is available, through external commercial borrowings (ECB) and foreign currency convertible bonds (FCCB) compared to $1.58 billion in November.

The RBI circular said the reduction in loan amount can be sanctioned if the consent of the lender for such a step been obtained. Besides, the average maturity period of the ECB has to be maintained and there has to be no change in the other terms and conditions of the ECB.

The apex bank also said that the drawdown schedule, or the estimate of the gradual transfer of the committed investment funds, can be modified or changed by the banks provided there are there are no changes in the  repayment schedule of the ECB and the the average maturity period of borrwing is reduced as against the original average maturity period stated at the time of obtaining the LRN.

The bank must also ensure that the reduced average maturity period complies with the stipulated minimum average as ECB guidelines.

"Any elongation/rollover in the repayment, on expiry of the original maturity, of the ECB, would however, continue to require the prior approval of the RBI," it said.

The circular further said: "The designated AD Category-I bank may approve requests from ECB borrowers for reduction in all-in-cost, in respect of ECBs availed both under the automatic and approval routes."

The all-in-cost includes rate of interest, other fees and expenses in foreign currency except commitment fee, pre-payment fee, and fees payable in Indian Rupees.

The modifications will come into immediate effect, the RBI said.