Refinancing ECBs with high-cost ones no longer allowed

The Reserve Bank of India (RBI) has done away with the facility for Indian companies to raise external commercial borrowings (ECBs) through higher all-in-cost to refinance or reschedule existing ECBs. The move is effective from Tuesday.

RBI said the all-in-cost ceiling would continue till March 31, 2014. According to RBI data, Indian companies have raised $81.3 billion (net) through ECBs since April 2007.

In 2007-08, these raised about $20 billion (net), the most in the last six years. Typically, the maturity of ECBs varies between three and eight years, though some have maturities exceeding 10 years, too.

Though a substantial part of the money raised between 2006-07 and 2009-10, worth about $29.3 billion, could come up for maturity, not all would be impacted by the new RBI norm. Companies that have arranged for funds to retire existing ECB money wouldn't be impacted.

Also, companies that have sought the central bank's approval to refinance existing ECBs may not be hit, as the approvals are valid for a year.

Meanwhile, RBI said the scheme to refinance existing ECBs by raising fresh ECBs at a lower all-in-cost would continue, subject to the condition that the outstanding maturity of the original ECB is either maintained or extended.