Financial Daily from THE HINDU group of publications
Thursday, Mar 10, 2005
Financial Daily from THE HINDU group of publications Thursday, Mar 10, 2005 |
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Financial Policy Corporate - Overseas Borrowings Money & Banking - Forex Govt may ease norms for ECBs — Curbs on foreign currency convertible bonds to go Our Bureau
New Delhi , March 9 THE Government may relax certain norms governing external commercial borrowings (ECBs) to enable Indian companies borrow abroad at lower cost, a senior Finance Ministry official indicated today. Addressing an interactive session on the Foreign Exchange Management Act (FEMA), organised by Assocham, Mr U.K. Sinha, Joint Secretary in the Finance Ministry, held that the present ECB norms were too restrictive for Indian corporates to raise substantial borrowings from abroad and therefore the issue was actively being reviewed by the Ministry. Mr Sinha said that a review was under way to remove restrictions on foreign currency convertible bonds (FCCBs) and announcements would be made at an appropriate time on this front. The official said restrictive measures continued to be applied on FCCBs under FEMA and needed to be softened. He held that the Ministry had already applied its mind on this issue. He also said that it favoured a cap on the interest rate for overseas borrowings by Indian companies. This, he said, would discourage high-cost external commercial borrowings. Mr Sinha said that the Government would not allow unrestricted interest rate regime in ECBs in view of the experience from the East Asian meltdown, which was caused by high interest rates and short-duration of such borrowings in the late 1990s. "Cost of borrowings is a concern for the Government. India would not like unrestricted interest rate regime (in ECBs). I don't think RBI would accept the suggestion that there should be no cap on ECBs," Mr Sinha said. He was replying to a question as to whether the current ceiling of 300 basis points above London Inter-Bank Offered Rate (LIBOR) on ECBs beyond 10 years was relevant to the changing needs of the economy. Mr Sinha also held that the response of foreign direct investments and portfolio flows from foreign institutional investors towards the Indian market was not poor even under the existing FEMA. "This does not mean that some of the provisions of FEMA should not be modified. The Government, RBI and SEBI are in constant touch to look at necessary modifications," he said.
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