Medium-Term Borrowings Of Fis May Be Pruned

The finance ministry is examining a proposal to prune the size of medium-term external commercial borrowings (ECBs) of financial institutions and ask them to go in for ECBs beyond 10 years.

The move follows fresh guidelines issued last week that freed commercial borrowings over 10-year maturity from the annual cap of $8.5 billion. The step to free long-term borrowings signals the government's intention to scrap limits on external commercial borrowings.

The ministry has already sent feelers to the FIs that their annual ECB clearance might be much less than requested. It will look at the FIs' allocation last year, the amount raised and the limit asked for in 1997-98 before granting fresh limits, an FI source said.

 

For instance, IDBI has sought permission to raise up to $850 million in the current year compared with $550 million in the previous fiscal year. ICICI has sought approval for a similar amount, while IFCI has requested clearance for $350 million.

IDBI officials favour medium-term borrowings as the rates are lower and currently there are not many long-term projects in hand.

However, ICICI chief executive officer K V Kamath says: We are happy looking at long-term borrowings. He feels that the limits on ECBs have become archaic and need to be revised: In view of the new relaxation, ICICI will take a view on its external commercial borrowings in the current year, said Kamath.

It is felt that short-term borrowings that FIs planned to raise this year should not be pruned because most of the projects being funded currently are in the range of five to seven years and the matching external commercial borrowings too are for a period of seven years.

However, it is argued that with infrastructure projects set to take off, 10-year loans will not have any problems in finding takers.