RBI relaxes external commercial borrowing norms for corporates, NBFCs

The Reserve Bank of India on Tuesday relaxed norms on end-use of funds raised via external commercial borrowings, making it more attractive and viable for corporates including non-banking finance companies to raise cheaper offshore funds.

The central bank said based on feedback from stakeholders and with a view to further liberalise the ECB framework it has been decided to relax the end-use restrictions and allow the use of funds for working capital requirements, general corporate purposes and repayment of rupee loans.

ECBs with a minimum average maturity period of 10 years can now be used for working capital purposes and general corporate purposes, the RBI said in a release.

"Borrowing for on-lending by NBFCs for the above maturity and end-uses is also permitted," it added.

Several corporates and particularly NBFCs have been facing a severe liquidity shortage and unable to access credit from domestic sources over the last 10 months following the collapse of Infrastructure Leasing and Financial Services in September.

"For many corporates and NBFCs getting adequate liquidity has become a problem even though there is a surge in systemic liquidity. This is because of the perception of credit risk. They are getting it (capital) but at a very high cost," said Rupa Rege Nitsure, chief economist at L&T Financial Services.

With the drop in global crude oil prices, a relatively stable currency and sharply lower interest rates in developed economies, it is a good time to open the ECB route for domestic borrowers, analysts said.

The RBI will also allow corporates and NBFCs to use proceeds from ECBs with a minimum average maturity period of 7 years for repayment of rupee loans raised domestically for capital expenditure.

Borrowing for on-lending by NBFCs for the repayment of rupee loans would also be permitted, they added.

For repayment of rupee loans raised domestically for purposes other than capital expenditure and for on-lending by NBFCs for the same, the minimum average maturity period of the ECB would have to be 10 years.

The RBI will also permit corporates to use ECB for repayment of rupee loans raised domestically for capital expenditure in the manufacturing and infrastructure sector and classified as special mention accounts or non-performing assets, under any one-time settlement arrangement with lenders.

"Lender banks are also permitted to sell, through assignment, such loans to eligible ECB lenders," the RBI said, adding that such a move would however need to comply with all other norms of the broad ECB framework.

"They do not want solvent corporates or NBFCs to suffer because of the lack of liquidity being available at a reasonable cost. These measures are likely being used as a transitional remedy and they may not keep it forever but possibly until a sense of financial stability returns," Nitsure said.