Liberalisation of External Commercial Borrowings

While most attention was shifted over the last few days towards the developments in Satyam, there have been some policy announcements further liberalising the external commercial borrowings (ECBs) that merit consideration.

On January 2, 2009, the Reserve Bank of India (RBI) announced policy changes to the ECB policy as follows:

– all-in cost ceilings for both automatic and approval routes have been dispensed with until June 30, 2009, although borrowers proposing to avail of ECBs beyond existing ceilings have to approach the RBI for approval;

– ‘development of integrated township’ has been reintroduced as a permissible end-use for ECBs; this was earlier removed as one of the end-uses in light of the concerns over lending to real-estate and the possibility of speculation;

– non-banking finance companies, which are exclusively involved in the infrastructure sector, are allowed to borrow for on-lending to borrowers in the infrastructure sector; and

– entities in the services sector, viz. hotels, hospitals and software sector are now permitted to avail of ECB up to USD 100 million per financial year, under the automatic route, for foreign currency and/or rupee capital expenditure for permissible end-use; previously they could only borrow for import of capital goods.

These measures would extend the availability of greater options to Indian corporate to finance their requirements through foreign currency borrowings.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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