RBI Simplifies ECB Norms; Companies Can Raise Small Value Loans

Published: 01st December 2015 03:34 AM  |   Last Updated: 01st December 2015 03:34 AM   |  A+A-

MUMBAI: To attract overseas funds, the Reserve Bank of India on Monday liberalised the ECB norms, allowing companies to raise small value loans with average maturity of 3 years up to $50 million.

The revised framework also opens the doors for overseas regulated financial entities, pension funds, insurance funds, and similar long-term investors to be recognised as lenders/investors. Lenders engaged in micro finance activities will accordingly get expanded.

Earlier, banks including cooperative banks, financial institutions, individuals and non-corporates were not eligible to raise ECBs, the revised norms propose participation of banks as ECB lenders subject to prudential norms issued by RBI. Similarly, refinancing of existing ECBs with a fresh ECB with higher all-in-cost (but within the ceiling) will also be permitted now.

RBI.jpg“The framework for ECB, as a means to attract flow of funds from abroad will continue to be a major tool to calibrate our policy towards capital account management in response to evolving macroeconomic situation,” RBI said adding the guidelines will be reviewed after one year.

The thrust of the revised framework was to retain qualitative parameters for the normal (foreign currency denominated) ECB and to provide liberal dispensation for long-term borrowings in foreign currency.

In India, ECBs in industrial and infrastructure sectors are allowed under automatic route ie., without requiring any approval from RBI or the government. On the other hand, sectors like export and import, need to have explicit permission of the government before getting foreign borrowings.

Currently, manufacturing firms can raise up to $750 million in one financial year, while services sector including hotels, hospitals, etc can raise up to $200 million a year.


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