The Hindu : ECB norms modified

Online edition of India's National Newspaper
Thursday, Nov 13, 2003

Business

Business

ECB norms modified

By Our Special Correspondent

NEW DELHI NOV. 12. With foreign exchange reserves overflowing, the Union Government has revised temporarily the existing policy on external commercial borrowings (ECBs). The amendments will come into force from the date of issue of notification.

Henceforth, all ECBs would be subject to revised maximum spreads over six months London Interbank Offered Rate (LIBOR) for the respective currency in which the loan is being raised or the applicable benchmarks. As per the new guidelines, normal projects which have at present a 300 basis points spread will now raise loans with 150 basis points spreads while infrastructure projects will move from the existing 400 basis points spread to 250 basis points. Long-term projects will move from the existing 450 basis points spread to 300 basis points.

It has also been stipulated that ECBs for meeting rupee expenditure under the automatic route will have to be hedged unless there is a natural hedge in the form of uncovered foreign exchange receivables which will be ensured by authorised dealers. ECBs exceeding $50 million will be permitted for two end-uses only — financing import of equipment and foreign exchange needs of infrastructure projects.

Non-financial intermediary, namely, banks, development financial institutions or non-banking finance companies, will be either allowed access to ECBs or to provide guarantee. However, this would not apply to textiles and steel restructuring packages, which have already been announced by the Government.

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