Ecb Norms To Be Eased
The finance ministry is considering a one-time relaxation in external commercial borrowings (ECB) norms, slated to be announced in the next fortnight.
The changes being considered include a shorter maturity period _ possibly five instead of seven years _ for the next year and more flexible end-user norms for ECBs. In addition, the finance ministry may also confer some `elementary' functional powers on ECBs to the Reserve Bank of India.
The high-level committee on ECBs in the finance ministry is scheduled to meet soon to finalise the details, government officials added. "The same options were considered immediately after sanctions were announced. But we thought it better to put it in place now, when things seem to be returning to normal rather than as a knee-jerk response. In any case, corporates were not entering the market two months ago," officials said.
The flexible end-user norms include permission to more promoters active in infrastructure sectors _ like roads _ to finance their rupee expenditure through ECBs. "The logic is that once we have a tight control on the overall level of ECBs, it makes sense to relax such restrictions. It need not be that they borrow only to fund import of capital goods," officials said.
Officials maintained that often, corporates which borrow for funding rupee expenditure engage in a swap with a commercial bank and thereby do not incur any exchange risk.
The move to shorten the maturity terms is motivated by the adverse movement in borrowing terms against Indian corporates since last September. This was largely because of waning enthusiasm on emerging markets paper in the wake of the south-east Asian currency meltdown.
More recently, the US sanctions and the Moody's downgrade ECB norms to be eased worsened the terms further.
As a result, corporates found it more cost saving to borrow domestically _ especially since interest rates have been on the wane for a long period. In fact, of the $9 billion in ECB approvals given in 1997-98, only about $4.5 billion was actually raised.
In the current fiscal year, the matters till a month ago were still worse with less than $900 million in ECBs _ excluding the short term credits raised by Indian Oil Corporation _ approved in the pre-Pokhran phase.
However, the situation has now altered with finance ministry having already cleared $1 billion in ECBs in July and is now expecting to approve another $1.5 billion in August-September, officials said.