Vide notification RBI/2017-18/169 issuing A. P. (DIR Series) Circular No. 25 (hereinafter referred to as Circular) dated 27 April 2018, the Reserve Bank of India (RBI), in consultation with the Government of India, relaxed the guidelines on External Commercial Borrowings (ECB).
Corporates and other entities planning to avail ECB to meet their capital needs were repeatedly approaching RBI for relaxations in the existing ECB framework. In light of the requests received and experience gained in administering the ECB regime, the circular liberalizes the earlier rules regarding the permissible end-use of ECB, expands the list of eligible borrowers by giving an opportunity to more entities, rationalizes the equity to ECB ratio and simplifies the all-in cost for availing ECB.
Following are the key amendments which have been brought by the circular:
Key Points | Change brought by the circular |
All-in-cost | It has been decided to
have a flat all-in-cost ceiling, uniform at 450 basis
points over the benchmark for ECB and Rupee Denominated
Bonds (RDBs) (commonly referred to as Masala Bonds). The benchmark
under Track I and Track II would be London Interbank Offer Rate
(LIBOR) and for Track III would be the prevailing yield of G-Sec of
the corresponding maturity. This change has done away with different slabs of cost for different maturities. |
Permissible end-use | It has been
decided to have only a negative list under all the tracks
to bring uniformity. The negative list is:
|
ECB liability to equity ratio | It is decided to
increase the ECB liability to equity ratio under automatic route
for ECB raised from direct foreign equity holder to 7:1 which was
earlier limited to 4:1. Under approval route, ECB can be availed
above the ratio of 7:1. This ratio will not be applicable if the total of all ECBs raised by an entity is up to USD 5 million or equivalent. |
Eligible borrowers' list | It has been decided to
permit the new eligible borrowers as under:
|
SKP's Comments
The relaxation brought is very viable and a lot of new investments may be expected. By allowing ECB for the purchase of land for affordable housing construction companies and bringing housing finance companies under automatic route opens a new route of financing for a sector with massive growth due to a home shortage in the country. The port sector has also been allowed to avail ECB recognizing that companies require increased flexibility and access to various types of financing. The ratio will help big businesses to tap foreign markets without having to take approval for a lot higher amount of ECB borrowings. The offshore funding has been made much more accessible by the above circular, it is to see how the entities now explore this newly abled area here onwards.
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