No easing of FDI, ECB norms for core sector

The Reserve Bank of India has rejected proposals to relax external commercial borrowing (ECB) and foreign direct investment (FDI) norms for infrastructure financing companies as well as to enhance foreign institutional investment in debt papers.

"Classification of a separate non-banking finance company (NBFC) category and relaxing norms for ECB and FDI may not be desirable as it creates opportunities for regulatory arbitrage," the Reserve Bank of India (RBI) said in its comment to the finance ministry on the proposal.

The Deepak Parekh Committee on Infrastructure Financing, which submitted its report in May to Finance Minister P Chidambaram, has recommended that infrastructure holding companies should not be subject to NBFC guidelines and be allowed to raise FDI and ECB through automatic route.

On non-applicability of NBFC norms, the RBI said special purpose vehicles and holding companies were being advised on a case-to-case basis that "they are not required to register as NBFC and thereby do not come under its regulatory purview".

Currently, NBFCs are allowed to raise ECBs with minimum average maturity of five years to finance import of infrastructure equipment for leasing to projects under approval route. However, infrastructure companies are permitted to raise ECBs up to $500 million under automatic route and another $250 million through approval route.

The RBI also rejected a proposal to relax the current overall cost ceiling of Libor plus 350 basis points fixed for ECBs, citing concerns over increased inflows.

The Parekh panel, which had recommended refinancing of rupee loans through ECB, got no favour from the RBI as ECB route is meant for only creation of productive assets in the real sector.