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RBI eases norms for external commercial borrowing
News: Reserve Bank of India has decided to liberalise external commercial borrowing (ECB) norms.
Facts:
- Removed the sector-wise limits: RBI has allowed all eligible borrowers to raise up to $750 million per financial year ECBs under the automatic route, replacing the existing sector-wise limits.
- List of borrowers expanded: The list of borrowers has been expanded to include all entities eligible to receive FDI.
- List of lenders expanded: Any entity who is a resident of a country which is financial action task force compliant, will be treated as a recognised lender.
- Maturity of borrowings: RBI has revised minimum average maturity period at 3 years for all ECBs, irrespective of the amount of borrowing, except for borrowers specifically permitted to borrow for a shorter period. Earlier, the minimum average maturity period was five years.
ECBs:
ECBs refer to commercial loans in the form of bank loans, securitized instruments (e.g. floating rate notes and fixed rate bonds, non-convertible, optionally convertible or partially convertible preference shares), buyers’ credit, suppliers’ credit availed of from non-resident lenders with a minimum average maturity of 3 years.
ECBs refer to commercial loans in the form of bank loans, securitized instruments (e.g. floating rate notes and fixed rate bonds, non-convertible, optionally convertible or partially convertible preference shares), buyers’ credit, suppliers’ credit availed of from non-resident lenders with a minimum average maturity of 3 years.
Impact of the decision:
- Higher funds availability: The step would increase the funds availability in India as until now RBI had capped funds raised via ECBs at 6.5% of GDP.
- Ease of doing business: The move will lead to increase in EoDB in India.
- Ease to cash-strapped companies: The move will bring more liquidity to cash strapped sectors and Indian airlines sector like currently struggling Jet Airways.
