RBI relaxes ECB norms to repay rupee loans or for new capital expenditure

The Reserve Bank of India (RBI) in its bid to support the ailing India Inc has relaxed the guidelines for companies to raise money overseas through external commercial borrowings (ECB). The apex bank has allowed companies to raise more funds through ECBs to repay rupee loans or for new capital expenditure in rupees.

Earlier, a company which could have raised a maximum of 50 percent of its average export earnings in the past three fiscal years is now allowed to raise ECB to 75% of the average foreign exchange earnings in the past three fiscal years, or 50% of the highest export earnings in any of the three years, or whichever is higher.

However, in case of Special Purpose Vehicles (SPVs), which have completed at least one year of existence from the date of incorporation and do not have sufficient track record/past performance for three financial years, the maximum permissible ECB that can be availed has been limited to 50 per cent of the annual export earnings realized during the past financial year; and the maximum ECB that can be availed by an individual company or group, as a whole, under this scheme has been restricted to $3 billion.

Special emphasis has been given to infra companies and through a separate notification, the central bank has said that companies in the infrastructure sector can seek trade credit for up to a maximum period of five years for importing capital goods, up from one-to-three years previously. Under the new norms, trade credit, which is a short-term loan should not be for a period of less than 15 months and also not in the nature of short-term rollover finance. Also, the credit facility would be available up to $20 million per transaction for import of capital goods as classified by the Directorate General of Foreign Trade (DGFT).