Ministry Split On Easing Ecb Norms

The finance ministry is split over a proposal to permit even non-registered lenders to extend external commercial borrowings (ECBs) to Indian corporates.

At present, only registered lenders approved by the Reserve Bank of India are allowed to lend funds to Indian corporates. Non-registered lenders as a group are permitted only to loan funds upto $1 million to corporates. Now the proposal is to lift the ceiling entirely.

The proposal is being opposed on the grounds that it could trigger money laundering as there would be no means to establish the antecedents of the lender.

Further, there was a risk that the interest rate on these borrowings could be on the higher side, especially if there is no arms-length relationship between the borrower and the lender.

 

However, the contrary viewpoint is that it is not for the finance ministry to verify the antecedents of the lenders. "There is no need for the ministry to play the moral police. If the proposal fits guidelines then it should be approved," an official remarked.

The move to extend rupee funding _ as part of the strategy to provide flexible end-user norms _ to more sectors too is being debated in finance ministry. This include permission to more infrastructure sectors _ like roads _ to finance their rupee expenditure out of the ECBs.

"The logic is that once we have a tight control on the overall level of ECBs, it makes sense in relaxing such restrictions. It need not be that they borrow only to fund import of capital goods," officials said.

Officials maintained that very often corporates who borrow for funding rupee expenditure engage in a swap with a commercial bank and thereby do not incur any exchange risk.

If these proposals find approval they will be included in the package of ECB measures the finance ministry is slated to announce. The changes being considered include a shorter maturity period _ possibly 5 instead of 7 years _ for the next one year, so that Indian corporates find it easier to access international markets.

In addition, the finance ministry is considering some "elementary" functional powers on ECBs to the Reserve Bank of India. The High Level Committee on ECBs in the finance ministry is scheduled to meet very soon to finalise the details, top government officials added.

In the current year so far, the response of corporates to ECBs has been very damp. However, the post-Pokhran situation has now altered with finance ministry having already cleared $1 billion in ECBs in July and is now expecting to approve another $1.5 billion in August-September, officials said.