Business

ECB norms tightened

NEW DELHI: The Central Government on Tuesday tightened the norms for external commercial borrowings (ECBs) to rein in flow of overseas funds into the country. The modifications in the ECB policy, which is under constant review by the Government in consultation with the Reserve Bank of India (RBI) to keep it in tune with the evolving macroeconomic situation, changing market conditions and sectoral requirements, comes into effect immediately.

According to an official release, ECBs of more than $20 million per borrowing company will henceforth be permitted only for foreign currency expenditure for permissible end-uses of ECB.

Accordingly, borrowers raising more than $20 million will park the proceeds overseas for use as foreign currency expenditure for permissible end-uses. The modifications will be applicable to ECBs exceeding $20 million per financial year both under the automatic route and under the approval route, the release said.

Under the automatic route, ECBs up to $20 million per borrowing company will have to be parked overseas and not remitted to India. However, borrowers proposing to avail themselves of ECB up to $20 million for rupee expenditure for permissible end-uses under the approval route will continue to park the proceeds overseas until the actual requirement in India.

All other aspects of the ECB policy such as $500 million limit per company per year under the automatic route, eligible borrower, recognised lender, average maturity period, all-in- cost-ceiling, prepayment, refinancing of existing ECB and reporting arrangements remain unchanged.

These conditions, the release said, would not apply to borrowers who have already entered into loan agreements and obtained loan registration numbers from the RBI. Borrowers, who have taken verifiable and effective steps, wherein the loan agreement has been entered into to avail of ECB in the previous dispensation and not obtained the loan registration number, may apply to the RBI through their authorised dealer.

PTI reports:

The move would curb capital expenditure in rupee terms. Interest costs for companies might jump by 75-100 basis points as ECBs were usually at lower interest rates than domestic borrowings, an industry official said. Indian companies had raised a total of $24 billion of ECBs during 2006-07 against the government’s internal target of $22 billion.

This is the second time in less than three months the government has tightened ECB norms to curb excessive flow of funds into the country. In May, the government debarred companies from raising money abroad to develop integrated townships. Till then, ECBs were not permitted for the real estate sector, but development of integrated township was excluded from the term ‘real estate’ for the purpose.

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