NEW DELHI: Companies that have violated external commercial borrowing (ECB) norms will not be able to raise fresh overseas loans through the ‘automatic route’ where they don’t need prior approval from the central bank, rule changes announced by the finance ministry show.
The modified rules, however, have opened the doors for developers of special economic zones to raise foreign debt for creating specified infrastructure facility in the zones. The amendments also extend the external borrowing window for developers of integrated townships to December 2009.
“Currently, the ECB policy is not explicit about accessing of ECB by corporates that have violated the extant ECB policy and are under investigation by the Reserve Bank of India or Directorate of Enforcement. It is clarified that any request by such corporates for ECB will be examined under the approval route,” a statement said.
The move will come as a big setback for companies that have been found guilty of or have an ongoing investigation against them for ECB violation: approvals may not come easy for them.
Opening up of the ECB route for
SEZ developers comes at the right time, especially in the backdrop of some companies such as DLF and the Raheja Group dropping plans to float IT SEZs due to lack of funds.
“This is a very positive step as SEZs have been adversely affected due to slackening of demand and non-availability of funds. Now that RBI has permitted ECB funding to SEZ developers for creation of infrastructure like industrial parks, ports and power, it would certainly help them in mobilising funds for development of the processing area as well as development of other social infrastructure in non-processing area.
RBI should also issue clear instructions that lending to SEZs shall be on terms and conditions which are applicable for infrastructure lending,” said LB Singhal, Director General, Export Promotion council for export-oriented units and SEZs.
Opening up the overseas borrowing window further for large borrowers such as SEZ developers would improve availability of credit for small and medium enterprises.
But SEZ developers cannot raise ECB for building integrated townships or commercial real estate within the zone. They can raise overseas loans only after taking approval for establishing infrastructure facilities.
Real estate developers that build integrated townships have also been allowed to raise foreign loans up to December, a facility that was to close on June 30 this year. Integrated townships comprise houses and other urban amenities like commercial premises, hotels, resorts, roads and bridges built in an area of at least 100 acres. The government had opened the foreign borrowing window for developers of integrated townships on January 2 as part of the stimulus measures and the facility has been extended until December to make a meaningful impact on the sector which has been hit hard by fall in demand.
A relaxation has also been made for non-banking finance companies (NBFCs) exclusively involved in financing of the infrastructure sector that were permitted to raise ECBs from multilateral or regional financial institutions and government-owned development financial institutions for on-lending to the borrowers in the infrastructure sector under the approval route. The condition that the direct lending portfolio of the eligible lenders vis-à-vis their total ECB lending to NBFCs at any point of time should not be less than 3:1 has been scrapped.
Source : The Economic Times