To further improve the ease of doing business in India, the Reserve Bank of India has drawn up a new external commercial borrowing (ECB) framework allowing all eligible borrowers to raise up to $750 million per financial year under the automatic route, replacing the existing sector-wise limits. The central bank has also expanded the list of eligible borrowers and recognised lenders.
To curb volatility in the forex market arising out of dollar demand for crude oil purchases, the framework provides a special dispensation to public sector oil marketing companies.
It allows them to raise ECB, with an overall ceiling of $10 billion, for working capital purposes with a minimum average maturity period (MAMP) of three years under the automatic route without mandatory hedging and individual limit requirements. The list of borrowers has been expanded to include all entities eligible to receive FDI.
Additionally, port trusts, units in SEZs, SIDBI, Exim Bank and registered entities engaged in microfinance activities can also borrow under this framework.
Maturity period
While the minimum maturity period for the ECB will be three years, the framework allows manufacturing companies to raise up to $50 million per financial year with a maturity period of one year. Further, if the ECB is raised from a foreign equity holder and utilised for working capital, general corporate purposes or repayment of rupee loans, the maturity period will be five years. This probably has been done to encourage foreign shareholders, especially in Indian airlines, to support their Indian partners. This could help Jet Airways deal with its current financial crisis.
As per the policy, call and put option, if any, cannot be exercised prior to the completion of the minimum average maturity.
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.