Our Bureau With domestic banks turning conservative in lending, the RBI has rationalised and liberalised its external commercial borrowing (ECB) policy so that India Inc can better access overseas funds.

The central bank has expanded the scope of ECB applicants to include housing finance companies (HFCs), port trusts, and companies engaged in the business of maintenance, repair and overhaul (MRO) and freight.

The ECB liability of a borrower (including outstanding loans and the proposed one) towards a foreign equity holder has been increased to seven times the equity contributed by the latter; earlier it was four times.

Kapil Wadhawan, CMD of housing finance firm DHFL, said: “RBI’s decision to restore the window for HFCs to access funds through ECB is definitely a big positive. This will further enable access to HFCs like us to diversify the borrowing mix...while allowing international investors to participate in the high-potential affordable housing story in India.”

Ashwini Kumar Hooda, Deputy Managing Director, Indiabulls Housing Finance, said the move opens up access to large pools of efficient debt funding for HFCs from FIIs and foreign banks.

Norms for applicants

Resident entities applying for ECB should conform to parameters such as minimum maturity, permitted and non-permitted end-uses and all-in-cost (AIC) ceiling.

The ECB framework comprises three tracks. Track I deals with medium-term foreign currency-denominated ECB with minimum average maturity of 3-5 years, while Track II is for similar ECB with 10 years maturity. Track III covers Indian rupee-denominated ECB with minimum average maturity of 3-5 years.

To harmonise the extant provisions of foreign currency and rupee ECBs and rupee-denominated bonds (RDBs), the RBI has stipulated a uniform AIC ceiling of 450 basis points (bps) over the benchmark rate.

The benchmark rate will be the six-month US dollar London Inter-Bank Offered Rate (or applicable benchmark for respective currency) for Track I and Track II, while it will be the prevailing yield of the Government of India security of corresponding maturity for Track III (Rupee ECBs) and RDBs.

So far, the AIC for the three tracks were different. Now, rationalising the end-use provisions for ECBs, the RBI has said for all tracks it will henceforth only have a negative list, which will include (a) investment in real estate or purchase of land except when used for affordable housing, construction and development of SEZ and industrial parks/integrated townships; (b) investment in capital market; and (c) equity investment.

Additionally, for Tracks I and III, specifically for loans with minimum average maturity of five years, three more negative end uses (except when raised from direct and indirect equity holders or from a group company) will apply: (d) working capital purposes; (e) general corporate purposes; and (f) repayment of rupee loans.

Further, the RBI said, for all tracks, the negative end use relating to on-lending to entities involved in all the six activities mentioned above will also apply.