RBI relaxes norms for external commercial borrowings

To attract more overseas fund, the Reserve Bank today relaxed the external commercial borrowing (ECB) norms with fewer restrictions on end uses and allowed loans from sovereign wealth funds, pension funds and insurers.
The revised framework also includes a more liberal approach for rupee-denominated ECBs where the currency risk is borne by the lender.
The guidelines also allow "raising of limit for small value external commercial borrowings (ECBs) with minimum average maturity of 3 years to USD 50 million from the existing USD 20 million".
"The expansion of the list of overseas lenders to include long term lenders like sovereign wealth funds, pension funds, insurance companies. Only a small negative list of end-use requirements is applicable to long-term ECBs and INR (rupee) denominated ECBs, the Reserve Bank said in a release.

The central bank further said that the policy was liberalised in consultation with the government, keeping in view the macro-economic developments and experience gained in administering the ECB regime over the last 10 years.
The sectoral regulator said the new policy will allow a more liberal approach, with fewer restrictions on end uses, besides a higher all-in-cost ceiling for long-term foreign currency borrowings.

It said the extended term makes repayments more sustainable and minimises roll-over risks for the borrower.
The revised rule will also allow for alignment of the list of infrastructure entities eligible for ECB with the harmonised list of government.

"The framework for ECB as a means to attract flow of funds from abroad will continue to be a major tool to calibrate the policy towards capital account management in response to evolving macro-economic situation," the RBI said.
The guidelines will be reviewed after one year based on the experience and evolving macro-economic situation, it said.
The central bank has formed three tracks under the revised framework.
One is for medium term foreign currency denominated ECB with minimum average maturity (MAM) of 3 to 5 years; second for long term foreign currency denominated ECB with maturity of 10 years and third track of Indian rupee denominated ECB with average maturity of 3 to 5 years.

The Reserve Bank, however, clarified that overseas branches or subsidiaries of Indian banks will not be permitted as lenders under track two and three.
The revised framework will come into force from the date of publication of the regulation in the official gazette, the RBI said, adding a transitional period up to March 31, 2016 has been allowed to ECBs contracted till commencement of the revised framework and in respect of special schemes which are to end by March 31, 2016.
Earlier in September this year, RBI had put a draft on the proposed ECB framework in the public domain for wider consultation.