ECB norms eased to repay Re loans, capex, trade credit

Under this scheme, the maximum ECB that an individual company or group (as a whole) can use is capped at $3 bn

The Reserve Bank of India today liberalised norms on using external commercial borrowings (ECBs) to repay loans, capital expenditure and trade credit availed by infrastructure companies.

For availing ECBs to repay rupee loans and fresh capital expenditure, RBI has enhanced the limit to 75 per cent of average foreign exchange earnings realised from 50 per cent of export earning in the last three years.

Under this scheme, the maximum ECB that an individual company or group (as a whole) can use is capped at $3 billion. The limit set for the scheme is $10 billion.

The central bank has also permitted infrastructure companies to use trade credit (up to five years) to import capital goods. Trade credit must be contracted for at least 15 months. It should not have elements of short-term credit rollovers.

 

The all-in-cost ceilings of trade credit will be 350 basis points above six-month London Interbank Offered Rate.

Infrastructure finance companies will be permitted to refinance bridge finance (nature of buyers’ and suppliers’ credit) with ECB under the automatic route, RBI said.

Cheaper fund access
Earlier in the day, the finance ministry had said it would look at steps for further easing of ECB norms to allow domestic companies access to cheaper funds abroad.

Economic Affairs Secretary Arvind Mayaram said at the executive committee meet of industry chamber Ficci: “We will continue to look at various spaces… ECB is one of that, not only to increase the foreign flow in the country but also to improve business climate… Many of the sectors now require higher foreign exchange-denominated loans, so we are looking at all of them.

"We are also looking at the possibility of allowing those companies — which have borrowed from Indian banks to get infrastructure assets outside of their country and there are some very large borrowings on that account — for borrowing abroad and retiring the Indian loans. So, the burden comes down."

Mayaram also said the fiscal deficit target of 5.1 per cent of GDP for this year might get exceeded but the government would take measures to contain this and promote investment with growth. The steps, which could be announced soon, might not only impact low income earners, but also “those who are in the higher classes”, he said, while asking people “to be prepared for that”.

Interest rates in India are high, with the Reserve Bank having refused to ease the policy rate beyond a point, to counter inflation.

Mayaram said people should not seek lowering of taxes; this would add to the problem of fiscal deficit. “The government intends to take steps to correct the fiscal deficit; it will not happen in one day. Correction would also mean hardship and that hardship will have to be across the board,” he added.

He hoped the country would be able to grow by six per cent in the current financial year, still among the highest rates in the world. This would be lower than estimated by the Prime Minister's Economic Advisory Council, at 6.7 per cent.

The economy expanded 5.5 per cent in the first quarter of the year.

He, however, admitted that inflation needed to be tackled in a manner that the government was able to give comfort to RBI for reviewing monetary policy.

Finance Minister P Chidambaram will meet the heads of nine public sector units tomorrow, to encourage them to move ahead with their investment plans. PSUs are sitting on cash of Rs 1.8 lakh crore and the ministry wants them to use this to propel economic activity. To boost investment and growth, the minister will take up the issue of clearance of pending projects with the cabinet. Several large projects of Rs 1,000 crore or more are being held up because of delay in statutory clearances.