RBI eases ECB Norms; MSMEs to benefit as cos can raise small value loans
Updated: Dec 01, 2015 12:03:37pm
Mumbai, Dec 1 (KNN) In a move which would ease overseas borrowing rules for the local companies and MSME sector, the Reserve Bank of India (RBI) on Monday eased the external commercial borrowing (ECB) norms with fewer restrictions on end uses and allowed loans from sovereign wealth funds, pension funds and insurers.
The revised framework also includes a more liberal approach for rupee-denominated ECBs where the currency risk is borne by the lender.
The new norms will allow companies to raise small value loans with average maturity of 3 years up to $50 million.
The revised framework will now allow overseas regulated financial entities, pension funds, insurance funds, and similar long-term investors to be recognised as lenders/investors. Lenders engaged in micro finance activities will accordingly get expanded.
“The framework for ECB, as a means to attract flow of funds from abroad will continue to be a major tool to calibrate our policy towards capital account management in response to evolving macroeconomic situation,” RBI said adding the guidelines will be reviewed after one year.
The guidelines also allow "raising of limit for small value external commercial borrowings (ECBs) with minimum average maturity of 3 years to USD 50 million from the existing USD 20 million".
"The expansion of the list of overseas lenders to include long term lenders like sovereign wealth funds, pension funds, insurance companies.
RBI said the new policy will allow a more liberal approach, with fewer restrictions on end uses, besides a higher all-in-cost ceiling for long-term foreign currency borrowings.
It said the extended term makes repayments more sustainable and minimises roll-over risks for the borrower.
In India, ECBs in industrial and infrastructure sectors are allowed under automatic route, without requiring any approval from RBI or the government. On the other hand, sectors like export and import need to have explicit permission of the government before getting foreign borrowings.
Currently, manufacturing firms can raise up to $750 million in one financial year, while services sector including hotels, hospitals, etc can raise up to $200 million a year. (KNN Bureau)
The revised framework also includes a more liberal approach for rupee-denominated ECBs where the currency risk is borne by the lender.
The new norms will allow companies to raise small value loans with average maturity of 3 years up to $50 million.
The revised framework will now allow overseas regulated financial entities, pension funds, insurance funds, and similar long-term investors to be recognised as lenders/investors. Lenders engaged in micro finance activities will accordingly get expanded.
“The framework for ECB, as a means to attract flow of funds from abroad will continue to be a major tool to calibrate our policy towards capital account management in response to evolving macroeconomic situation,” RBI said adding the guidelines will be reviewed after one year.
The guidelines also allow "raising of limit for small value external commercial borrowings (ECBs) with minimum average maturity of 3 years to USD 50 million from the existing USD 20 million".
"The expansion of the list of overseas lenders to include long term lenders like sovereign wealth funds, pension funds, insurance companies.
RBI said the new policy will allow a more liberal approach, with fewer restrictions on end uses, besides a higher all-in-cost ceiling for long-term foreign currency borrowings.
It said the extended term makes repayments more sustainable and minimises roll-over risks for the borrower.
In India, ECBs in industrial and infrastructure sectors are allowed under automatic route, without requiring any approval from RBI or the government. On the other hand, sectors like export and import need to have explicit permission of the government before getting foreign borrowings.
Currently, manufacturing firms can raise up to $750 million in one financial year, while services sector including hotels, hospitals, etc can raise up to $200 million a year. (KNN Bureau)
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