The Reserve Bank of India is planning to ease norms for long-term borrowings in foreign currency for Indian companies. This could include allowing them to incur higher outgo by way of fee and interest for raising the funds.
Further, external commercial borrowings (ECBs), irrespective of whether they are normal (maturity not less than three/five years), long term (minimum maturity of 10 years) or rupee denominated, could be raised from an expanded list of recognised overseas lenders.
Real Estate Investment Trusts and Infrastructure Investment Trusts will also be eligible to tap rupee denominated ECBs.
As part of its draft framework on ECBs, the central bank also wants to make it easy for Indian enterprises to tap rupee denominated ECBs for all purposes except for a small negative list.
Hedging facility Overseas investors having an exposure to rupee denominated ECBs will be allowed to hedge them in onshore markets. Back to back hedging will also be allowed.
The RBI said it will retain the existing basic structure of ECB framework for normal foreign currency borrowings with certain liberalisations made based on experience.
The restrictions on eligible borrowers, end-use (that is, capital expenditure), maturity (not less than three/five years) and all-in-cost (linked to a spread over the London Inter-Bank Offered Rate) for such ECBs will continue.
However, for long-term foreign currency borrowings (minimum maturity of 10 years), the RBI will prescribe only a negative list of end uses.
To encourage long-term ECBs, the RBI is willing to permit all-in-cost (outgo by way of fee and interest), which is 50 basis points higher than that permitted for normal ECBs. In the case of normal ECBs, the all-in-cost will be 50 basis points less than the extant ceilings.
The lenders’ list will be expanded to include overseas regulated financial entities, pension funds, insurance funds, sovereign wealth funds and similar long-term investors. Participation of Indian banks as ECB lenders will be subject to prudential norms issued by the RBI.
In the case of normal ECBs, the RBI will allow part-prepayment of ECB subject to conditions.
Further, refinancing of existing ECB with a fresh ECB with higher all-in-cost (but within the ceiling) will now be permitted.
Seeks feedback The RBI said a framework for issuing rupee denominated bonds overseas will be announced separately. It has sought feedback on the draft ECB framework from stakeholders on or before October 11.
This keeps in view the evolving domestic as well as global macroeconomic and financial conditions, challenges faced in external sector management and the experience gained so far in administering the ECB policy.