The Hindu : Business : ECB norms eased to spur investments

Online edition of India's National Newspaper
Friday, May 30, 2008
ePaper | Mobile/PDA Version

Business

Business

ECB norms eased to spur investments

Special Correspondent

Infrastructure cos. can raise up to $100 m

NEW DELHI: In a move that is likely to spur investments in core sectors such as roads and power, the Government on Thursday modified its ECB (external commercial borrowing) policy to permit infrastructure companies to raise up to $100 million (about Rs. 400 crore) from overseas markets at comparatively lower rates of interest.

Alongside, to take advantage of the depreciating rupee against the U.S. dollar as also in keeping with the evolving macroeconomic situation and changing market conditions, the Government also eased the ECB norms for corporates by hiking their overseas fund raising limit from the current $20 million to $50 million.

Corporate bond market

According to a Finance Ministry statement released here, foreign institutional investors (FIIs) would also be permitted to invest up to $5 billion in government securities and up to $3 billion in corporate bonds as compared to the existing ceilings of $3.2 billion and $1.5 billion, respectively. The twin measures are expected to boost the country’s corporate bond market while enabling the Government to mop up funds at competitive rates.

The liberalised ECB norms would be applicable after a notification by the Reserve Bank of India in this regard, the statement said. The decision to modify the norms in keeping with the changing times was taken by a high level coordination committee on ECBs in the Ministry in which the RBI and SEBI representatives were also present.

Along with the changes in guidelines, the Finance Ministry has also decided to hike the interest rate ceiling for mopping up funds from overseas. While companies can now raise funds for three to five years at a rate two per cent higher than the London Interbank Offered Rate (LIBOR), for loans maturing beyond a five-year period, it would be at 3.5 per cent plus LIBOR. These fresh ceilings are to be applicable for corporates raising funds under automatic and approved route.

However, companies would be able to continue mopping up funds up to $500 million under the automatic route and other norms with regard to prepayment, refinancing of ECBs and reporting arrangements would remain unchanged.

It may be recalled that the apex bank had disfavoured a separate softer regime for overseas funds for the infrastructure sector which requires low-cost and long-term funds for the long-gestation projects.

The present curbs on end-users of ECB were introduced in August last to halt the appreciation of the rupee against the dollar and the swell-up of liquidity in the system which led to a spike in inflation rate. The Government had, therefore, restricted the inflow of ECB funds by an Indian company to $20 million annually and had made RBI’s approval mandatory.

Printer friendly page
Send this article to Friends by E-Mail

Business

News Update

Stories in this Section