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A Managing Director of a medium-sized corporate house, whose ECB has been held up to the RBI decision, severely criticised the apex bank's move.

Kolkata , Dec. 24

APPLICATIONS worth $800-1,000 million from India Inc for external commercial borrowings (ECBs) are pending before banks and financial institutions as the Reserve Bank of India has embargoed them from issuing the necessary bank guarantees.

However, it may end up as a major boon in disguise for the stock market because corporate houses are contemplating raising funds through the equity route in an effort to come out of the ECB setback.

According to sources in the corporate houses, several applications are with the banks and financial institutions because of a recent RBI circular (dated November 14, 2003) which categorically stated that "no financial intermediary... will be allowed to provide guarantees in favour of overseas lenders", on behalf of their clients.

"There is no official compilation of the total number of applications filed by the corporate houses or the total amount of loan sought from the overseas lending institutions but it appears that it will certainly be in the range of $800 million to $1,000 million, if one studies the ongoing industrial projects," sources told Business Line.

It was learnt that corporate houses, both large and medium, have been forced to reconsider their short-term fund raising programme due to this decision of the apex bank. India Inc sources said expansion projects with ECB funding have been severely hit due to this factor. Finances of these projects are currently being reworked.

"Going by the current bull run of the bourses, the stock market is an attractive alternative. The corporate houses may opt for equity route, either rights issue or preferential shares, to replace the ECB programme," sources said.

As per the RBI circular, ECBs worth more than $50 million are being allowed for financing equipment import and to meet the foreign exchange needs of an infrastructure projects.

The reason behind this move is to encourage corporate houses to go for domestic loans.

Moreover, the foreign exchange reserve of the country is at an all-time high of $100 billion.

"There is no point in further increasing this corpus and at the same time force our domestic banks and financial institutions to suffer from low credit off-take. After considering all these aspects, the RBI decided to stop the banks from offering guarantees for ECBs," a senior bank official explained. A Managing Director of a medium-sized corporate house, whose ECB has been held up to the RBI decision, severely criticised the apex bank's move.

"The foreign lenders are offering loans at unbelievable rates. At times it is even less than six per cent."

"Will domestic bank be able to offer such competitive lending rates?" he asked. However, sources in India Inc said that RBI may reconsider its decision as the "wording of the circular was quite soft."

Banking sources, however, failed to support the optimism of the corporate houses.

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