The Hindu Business Line : Bankers fret over delay in ECB guidelines

Chennai March 26 It was back in October 2006 that the Reserve Bank of India announced that it would allow an increase in the extent to which banks could borrow overseas, through the external commercial borrowings (ECB) route.

In the `Mid-term review of Annual Policy for 2006-07' of October 2006, the RBI had said that it would allow banks to borrow through ECB upto 50 per cent of their tier-I capital, but this would include borrowing to give export credit.

Earlier, banks were allowed to borrow 25 per cent of their tier-I capital, but excluding any loans taken for onlending to exporters.

It's four months down the line; the RBI is yet to formalise guidelines for this, in the absence of which banks will not be able to utilise the enhanced ECB facilities.

This delay has irked bankers. Several bankers (all of whom have requested not to be named) have told Business Line that they were waiting eagerly for the guidelines. "There is a good demand for enhanced ECB from banks and the delay is not being helpful," a banker said.

With credit growing much faster than deposits, banks are looking for avenues to find low cost resources to fund the economy's appetite for loans. This "was really the reason why the RBI made the announcement in the first place, but the guidelines are yet to come," noted another senior banker.

When asked about this, Ms Alpana Killawala, Chief General Manager, RBI, said, "we are currently in consultation with Indian Banks Association and are trying to work out guidelines for operationalising the announcement."

The policy statement read: "Authorised dealer banks may borrow funds from their overseas branches and correspondent banks (including borrowing for export credit, external commercial borrowings (ECBs) and overdrafts from their Head Office/Nostro account) up to a limit of 50 per cent of their unimpaired Tier I capital or $10 million, whichever is higher, as against the earlier overall limit of 25 per cent (excluding borrowing for export credit). Short-term borrowings up to one year or less should not exceed 20 per cent of unimpaired Tier I capital within the overall limit of 50 per cent."

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