RBI eases ECB policy, lifts sectoral curbs.

Mumbai: RBI  on Wednesday came out with a new policy for overseas borrowings, allowing all eligible entities to raise foreign funding under the automatic route and removing sectoral curbs. All eligible borrowers can now raise external commercial borrowings (ECB) up to $750m per fiscal under the automatic route. tnn 

The "liberalisation/rationalisation" in the new framework ECB and rupee-denominated bonds has been done to further improve the ease of doing business, the central bank said. "Tracks I and II under the existing framework are merged as 'Foreign Currency denominated ECB' and Track III and Rupee Denominated Bonds framework are combined as 'Rupee Denominated ECB' to replace the current four-tiered structure. The framework is instrument-neutral," the RBI said. Track I, II and III denotes amount and maturity of funds raised.

Further, all-in cost ceiling per annum has been pegged at "benchmark rate plus 450bps spread' (100 basis points = 1 percentage point). The minimum average maturity period (MAMP) has been kept at three years for all ECBs, irrespective of the amount of borrowing in lieu of various layers of MAMPs as at present, except the borrowers specifically permitted in the circular to borrow for a shorter period, the RBI norms said.

The list of eligible borrowers has been expanded to include all entities eligible to receive foreign direct investment (FDI).

Additionally, port trusts, units in SEZ, SIDBI, EXIM Bank, registered entities engaged in micro-finance activities, registered societies/trusts/ cooperatives and non-government organisations can also borrow under the new framework.

However, lending and borrowing under the ECB framework by Indian banks and their overseas branches/subsidiaries will be subject to prudential guidelines, the RBI said. “Further, other entities raising ECB are required to follow the guidelines issued, if any, by the concerned sectoral or prudential regulator,” the central bank said.

ECBs are commercial loans raised by eligible resident entities from recognised non-resident entities and should conform to parameters such as minimum maturity, permitted and non-permitted end-uses, and maximum all-in-cost ceiling.

The negative list, for which the ECB proceeds cannot be utilised, would include real estate activities, investment in capital market, equity investment, working capital purposes except from foreign equity holder, repayment of Rupee loans except from foreign equity holder.