The Hindu : Further amendments to ECB norms

Online edition of India's National Newspaper
Tuesday, Jan 20, 2004

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Business

Further amendments to ECB norms

By Our Special Correspondent

NEW DELHI, JAN. 19. The Union Finance Ministry has announced some more amendments to external commercial borrowing (ECB) guidelines that will come into force from the date of issue of notification of regulations or directions.

For one, end-use restrictions have been removed and ECBs will be allowed for corporate investments in the industrial sector, especially the infrastructure sector. But the money raised has to be parked abroad unless actually required. The usual restrictions on ECB for investment in capital markets or in real estate will, however, continue. In setting out the eligibility criteria, the Ministry has allowed all corporates except banks, non-bank finance companies (NBFCs) and financial institutions, to go in for external commercial borrowings. However, banks and financial institutions having participated in the textile or steel sector restructuring package of the Government or the Reserve Bank of India will be permitted to the extent of their investment in the package.

On interest rate spreads, the new guidelines say that all ECBs will be subject to the revised maximum spreads over six month London Inter-Bank Offered Rate (LIBOR) for the respective currency in which the loan is being raised or the applicable benchmarks, as the case may be. Consequently, for ECBs of average maturity of 3-5 years, the interest rate spread will be 200 basis points and for maturity of more than five years average it will be 350 basis points. As for the guarantee, banks, financial institutions and NBFCs will not be able to provide guarantee or letter of comfort and the like.

Outlining the procedure, the Ministry says all ECBs satisfying the laid down criteria will be under the automatic route up to $20 million for ECBs between three and five years of average maturity and up to $500 million for ECBs having average maturity of more than five years. The RBI will prescribe the reporting mechanism for these ECBs.

In case of foreign currency convertible bonds, similar liberalisation, as being made for ECBs, will apply with regard to spreads, end use restrictions and procedures. An Empowered Committee of the RBI will decide all other cases which fall outside the purview of the automatic route in the new liberalised ECB policy.

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