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State-owned companies seek easier ECB norms to raise funds

05 Aug 2013 Evaluate

In a bid to easily raise debt from the overseas markets, several state-owned companies have approached Finance Ministry seeking relaxation in External Commercial Borrowings (ECB) norms, which apart from helping them to raise debt, would also help the government tide over forex problems. According to the latest data, Indian companies raised $1.13 billion from overseas markets through external commercial borrowings and foreign currency convertible bonds in April, down 77.8 percent from a month earlier.

While, the government is making all efforts to make it easier for PSUs to issue quasi-sovereign bonds to enhance foreign investment into the country and will be holding a meeting on August 12 and 13 to see what can be done to relax the ECB norms for corporates, including PSUs. The ECB borrowing is considered safe and is a better source of funding for the current account deficit (CAD) gap as it is long-term finance. In the previous fiscal, country’s CAD had widened to a record high of 4.8 percent of the GDP and has became a cause of concern for the country as it impacts the economic macro-economic indicators like exchange rate, inflation and growth.

Domestic currency weakness has became a major concern, as the rupee depreciated over 13 percent since April-end, touching a record low of 61.21 to a dollar, mainly on account of widening CAD concerns and worries of tapering down of bond purchases by the US Federal Reserve. Though, the RBI and government are considering a host of measures to stabilise the rupee and attract foreign fund inflows.

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