The Reserve Bank of India (RBI) today relaxed external commercial borrowing (ECB) norms for infrastructure finance companies by allowing them to avail of the overseas borrowings up to 75 per cent of their net worth without its approval, up from 50 per cent earlier.
“It has also been decided to reduce the hedging requirement for currency risk from 100 per cent of their exposure to 75 per cent,” RBI said, adding the new policy came into effect with immediate effect.
Indian companies raised $1.34 billion (Rs 7,400 crore today) through ECB and foreign currency convertible bonds (FCCB) in November to fund modernisation, foreign acquisitions, import of capital goods and onward lending. Of the total amount raised in November, $1.10 billion was via the automatic route, while $240 million was raised through the approval route, which requires case-by-case approval from RBI.
FCCBs are a type of bonds that can be converted into equity at maturity.
According to RBI data, companies raised $4.29 billion via ECBs and FCCBs in October. In the first nine months of 2012, firms raised about $28 billion via ECBs, compared to $31 billion during the corresponding period last year. RBI has been easing the ECB norms with a view to channelising more external funds to the infrastructure sector. In 2011-12, RBI had said 25 per cent of the fresh ECBs raised by companies could be used to repay their rupee loan from the domestic banking system for completed infrastructure projects, with 40 per cent being allowed for the power sector.
In its annual report for 2011-12, the central bank, however, noted one of the challenges regarding ECBs was the ever-increasing demand to liberalise their terms of end-use and eligibility vis-à-vis the sustainability of the external debt.
In 2011-12, the annual limit for ECBs under the automatic route was enhanced for companies in the manufacturing, infrastructure, services sectors and NGOs engaged in microfinance activities. Microfinance institutions were also permitted to raise ECBs for onward lending to microfinance activities. In addition, eligible borrowers were permitted to avail of ECBs designated in Indian rupee from foreign equity holders.