RBI has recently announced a new regulation for all the foreign borrowings, thus permitting all the eligible companies to raise overseas funding under the regular route and remove the existing sectoral curbs. All the entitled borrowers would be now able to raise external commercial borrowings (ECB) up to the maximum limit of $750m per year under the regular route.
The “liberalization or rationalization” in the latest framework ECB and rupee-denominated bonds has been mainly done to simplify the process of doing any business, said the central bank. The RBI said that the Tracks I and II under the current framework have been combined as the ‘Foreign Currency denominated ECB’ and the Track III or the Rupee Denominated Bonds structure has been amalgamated as ‘Rupee Denominated ECB’ to replace the current four-tiered arrangement and the structure has now become instrument-neutral. Here, Track I, II, and III stands for the total amount and maturity of the funds that are raised.
In addition, all-in cost ceiling per year is quoted at ‘benchmark rate plus 450 bps spread’, where 100 basis points are equal to 1 percentage point. The minimum average maturity period (MAMP) is decided at three years, which is applicable for all the ECBs, whatever may be the borrowing amount in lieu of different layers of MAMPs currently, with an exception of the borrowers who are especially allowed in the circular to borrow only for a short period, the RBI norms said.
The list of qualified or eligible borrowers now includes all businesses eligible to get FDI. In addition, all the port trusts, businesses in SEZ, SIDBI, all registered companies involved in micro-finance activities, EXIM Bank, registered trusts, societies, cooperatives, and NGOs could also borrow as per the new framework. But, lending or borrowing as per the ECB framework conducted by Indian banks and their foreign branches would be subject to the prudential regulations, said the RBI.
ECBs are basically commercial loans that are raised by qualified resident organizations from recognized non-resident businesses or organizations and must comply with all the usual parameters like minimum maturity, permissible and not permissible end-uses, and also highest allowed all-in-cost ceiling.
However, there is also a negative list, where the ECB proceeds are not permitted to be utilized, and those include real-estate activities, equity, and capital market investment, purposes of working capital barring foreign equity holder, and repayments of Rupee loans barring foreign equity holder.
