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  3. Government to relax external commercial borrowings norms

Government to relax external commercial borrowings norms

07 Aug 2013 Evaluate

In order to boost capital inflows into the country and to help prop up the rupee value, the government is all set to relax norms for external commercial borrowings (ECB) to enable debt- starved Indian firms tap overseas markets. A high-level committee on ECBs is likely to take a host of decisions soon, including allowing Indian arms of multinational companies to raise funds from parents for working capital. The move, apart from helping domestic companies to raise overseas debt would also help the government tide over forex problems.

The panel is expected to allow companies to raise up to $300 million by way of external debt with tenure less than three years compared with the current limit of $20 million. The quantum of ECB under automatic route is set to be doubled to $1.5 billion from $750 million now for debt with maturity up to five years. Further, it may also allow state-run banks to raise tier-1 capital (equity plus free reserves) from overseas markets under the ECB window. Moreover, ECB panel is likely to allow repayment of rupee loans from ECB proceeds, a move that was restricted to certain sectors. At present, funds raised through ECB can be used to refinance rupee loans for infrastructure sector up to the extent of 25% of fresh ECBs and in case of the power sector, refinancing is permitted to the extent of 40%. 

Earlier, Indian companies, both in the private and public sector, have approached the finance ministry seeking relaxation in the ECB norms to make them easier to borrow from overseas markets. 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. Currently, widening CAD has become a major reason for the domestic currency weakness. Rupee value depreciated over 13 percent since April-end and has touched a new record low of 61.80 to a dollar on August 6.

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