RBI eases overseas borrowing rules for domestic companies

Companies will be able to borrow up to $50 million in ECBs with 3-year maturities and more than $50 million for 5-year maturities

The Reserve Bank of India (RBI) proposed relaxing some of the rules for domestic companies looking to raise funds overseas through external commercial borrowing, a long-anticipated move.

The RBI said companies will now be able to borrow up to $50 million in ECBs with 3-year maturities and more than $50 million for 5-year maturities. The previous limits had been around $20 million, an investment banker said.

The RBI also said it would now allow real estate investment trusts and infrastructure investment trusts to raise rupee-denominated funds offshore, a step likely to provide some relief to the cash-strapped real estate sector in India.

 

India has long imposed tight rules on companies raising money abroad. In a country with a chronic current account deficit, excessive overseas borrowing could create a weaker external position. A narrowing deficit and growing foreign exchange reserves mean the central bank can now ease some of those rules.

"An attempt has now been made to replace the ECB policy with a more rational and liberal framework, keeping in view the evolving domestic as well as global macro-economic and financial conditions," the RBI said in a statement.

As part of the proposals, the RBI also said it would allow funds raised from ECBs to be directed to additional purposes, including certain infrastructure lending and some overseas direct investments.

However, the RBI also proposed tightening how much companies can pay to borrow via ECBs, saying it would lower by 50 basis points the current all-in-cost ceiling of 350 bps over 6-month Libor for 3-5 year loans and 500 bps over Libor for above 5 year maturities

Relaxing the guidelines had been expected after a government committee in April had submitted its recommendations.

The RBI asked for market participants to provide feedback by Oct 11.