Overseas borrowing window for India Inc. opened further

Our Bureau Updated - March 12, 2018 at 09:12 PM.

Firms in industrial, infrastructure sectors can raise up to $750 m now

Corporates in specified service sectors can raise up to $200 million now.

In a bid to attract precious foreign exchange in the face of the global economic crisis, the Reserve Bank of India, in consultation with the Centre, has hiked the external commercial borrowing (ECB) limit for corporates.

Corporates in the industrial and infrastructure sectors can raise up to $750 million or equivalent under the automatic route as against the present limit of $500 million or equivalent, according to a RBI notification issued on Monday.

Service sector

Further, corporates in specified service sectors — hotel, hospital and software — can raise up to $200 million or equivalent under the automatic route as against the present limit of $100 million or equivalent.

According to analysts, inflows under the ECB route could prop up the rupee, which tested the psychological 50/dollar mark last week. The rupee closed at 49.45 a dollar on Monday.

“When the horse is not running, you have to show it the carrot. This is what the RBI has done by liberalising the ECB window. By allowing more players to access the ECB route, the central bank appears to be banking on the pull factor to attract foreign exchange inflows.

“Amidst all the global turmoil, India is not a bad story so inflows will happen,” said Mr Moses Harding, Executive Vice-President & Head-Treasury, IndusInd Bank.

Considering the specific needs of the infrastructure sector, Indian companies in this space have been permitted to utilise 25 per cent of the fresh ECB raised towards refinancing the rupee loans taken by them from the domestic banking system under the approval route.

This is, however, subject to the condition that at least 75 per cent of the fresh ECB proposed to be raised should be utilised for capital expenditure towards a ‘new infrastructure' project(s).

Further, infrastructure companies can import capital goods by utilising short-term credit (including buyers' credit / suppliers' credit) in the nature of ‘bridge finance', under the approval route.

Corporates in the infrastructure sector can avail themselves of ECBs for ‘interest during construction' (IDC) as a permissible end-use, under the automatic/approval route, subject to the IDC being a part of project cost and is capitalised.

The RBI notification states that ‘all eligible borrowers' have been permitted to avail of ECBs designated in rupees from foreign equity holders, under the automatic/approval route.

Foreign equity holders

To benefit eligible borrowers, ECB proposals from foreign equity holders (direct/indirect) and group companies under the approval route will be considered by the RBI.

Service sector units, in addition to those in hotels, hospitals and software, could also be considered as eligible borrowers if the loan is obtained from foreign equity holders.

This would facilitate borrowing by training institutions, R&D, and miscellaneous service companies.

ECB from indirect equity holders may be considered provided the indirect equity holding by the lender in the Indian company is at least 51 per cent.

ECB from a group company may also be permitted provided both the borrower and the foreign lender are subsidiaries of the same parent.

While submitting their proposals, eligible companies have to ensure that total outstanding stock of ECBs (including the proposed ECBs) from a foreign equity lender does not exceed seven times the equity holding, either directly or indirectly of the lender.

Published on September 26, 2011 17:04