Govt Eases Ecb Norms, Extends Maturity Periods

In a major relaxation of external commercial borrowings (ECB) guidelines, the government yesterday decided to permit ECBs for project-related rupee expenditure in all sectors subject to certain conditions, raised the limit under the $3 million scheme to $5 million and revised the minimum maturity requirement under various schemes.

The modified guidelines take effect from yesterday.

A notification issued here yesterday said the average maturity requirement for ECBs for the long-term maturity window outside the ECB cap has been reduced from 10 years to 8 years for ECBs upto $100 million and from 20 years to 16 years for ECBs upto $200 million for general corporate objectives.

Further, in order to enable corporates to hedge exchange rate risks, domestic rupee denominated structured obligations would be permitted to be credit enhanced by international banks/ international financial institutions/joint venture partners. The conditions placed on the permission given to ECB for project related rupee expenditure in all sectors include :

* ECBs raised for project related rupee expenditure must be brought into India immediately.

* ECBs raised for import of capital goods and services should be utilised at the earliest. Corporates should strictly comply with the RBI's extant guidelines on parking ECBs outside till actual imports. The RBI will be monitoring ECB proceeds parked outside.

* ECBs raised will not be permitted to be used for investment in the stockmarkets or real estate.

The limit for the $3 million scheme has been raised to $5 million and the RBI would, as before, be the approving authority.

Further, in view of the changed external financial environment, the minimum maturity requirements under various ECB schemes have been revised.ECB eligibility under the scheme for exporters is raised to three times from the current two times. This is based on the average export performance during the last threee years of the exporters subject to a maximum of US $ 100 million.

Earlier in July, the finance ministry had modified ECB norms in view of the continued uncertainity in global financial markets. This included a ban on prepayment of ECBs and a reduction in the cooling period for corporates to reapply for borrowings.

The changes this time, the finance ministry release points out, are based on requests from several core sectors for relaxation of end use. All other conditions with regard to the ECB eligibility for project finance that is exposure limit will remain unchanged. The release points out that the government have been progressively relaxing end use restrictions on use of ECBs.