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- The Reserve Bank of India(RBI) has decided to relax the end-use restrictions relating to external commercial borrowings(ECB).
- RBI has allowed ECBs with minimum average maturity period of 10 years for working capital purposes and general corporate purposes.It has also permitted borrowing for on-lending by non-banking financial companies(NBFCs) for the 10 year maturity.
- Further,RBI has also allowed ECBs with a minimum average maturity period of 7 years for repayment of rupee loans availed domestically for capital expenditure.
- This move is aimed at providing access to cheaper and longer term funds for the corporate sector,especially liquidity-starved non-banking finance companies(NBFCs).
- The defaults by IL&FS had affected the entire NBFC sector.Several NBFCs have also been struggling to raise funds.Liquidity woes has also led to payment delays by housing mortgage firm DHFL.
- ECB is basically a loan availed by an Indian entity from a nonresident lender.Most of these loans are provided by foreign commercial banks and other institutions.
- The borrowings are in the form of bank loans, buyers credit, suppliers credit and securitized instruments with a minimum average maturity of three years.
- ECBs availed of by residents are governed by the Foreign Exchange Management Act,1999 along with the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations,2000 as amended from time to time.
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