ECB window to widen

ECB window to widen

Last Updated: Fri, Nov 23, 2012 04:15 hrs
The ECB headquarters is pictured in Frankfurt

The government is set to broaden the ambit of external commercial borrowings (ECB) by including sectors incorporated in the new definition of infrastructure, approved by the Cabinet committee on infrastructure.

The move will allow companies involved in several sectors, including education and health, access ECB to raise debt and avail themselves of the benefits of relaxations in ECB norms.

Sources in the know of the development said the finance ministry was in discussions with the Reserve Bank of India (RBI) and a final decision was expected by next week.

A high-level committee on ECB, headed by Economic Affairs Secretary Arvind Mayaram will meet on November 30 to clear the proposal, following which the RBI would issue the relevant notification.

The Cabinet committee approved a harmonised list of sectors in March to be identified as infrastructure. The list has outlined five main sectors and 29 infra sub-sectors. The five sectors are transport, energy, water sanitation, communication and social and commercial infrastructure.

The infra tag allows companies to claim benefits such as access to easier borrowing overseas, raising funds through tax-free bonds, tax concessions, and access to dedicated institutional lenders and debt funds.

Educational institutions, hospitals (including medical colleges, paramedical training institutes and diagnostic centres), three-star or higher category hotels located outside cities with a population of more than a million, common infrastructure for industrial parks, SEZs, tourism facilities and agriculture markets, capital investment in fertilisers, post-harvest storage infrastructure for agriculture and horticultural produce, including cold storage, terminal markets and soil-testing labs, are now included under social and commercial infrastructure. The communications head covers telecom towers along with telecommunications networks.

Indian companies are looking at the ECB route to lower the cost of borrowing. Currently, companies in India pay 11-12.5 per cent interest on bank loans. A similar loan through an ECB is available at under four per cent interest rate.

The government liberalised ECB norms in the Budget this year for sectors including power, roads, civil aviation and affordable housing.

While the relaxations have already been made operational in the case of power, roads and civil aviation, the relevant notification in the case of affordable housing is expected to be issued by the RBI in the next two weeks.

Under the liberalised regime, companies have been allowed to use ECB to part-finance rupee debt for existing power projects.

Further, to provide low-cost funds to stressed infrastructure sectors, the rate of withholding tax on interest payments on ECB has been reduced from 20 per cent to five per cent. The sectors are power, airlines, roads and bridges, ports and shipyards, affordable housing, fertilisers and dams.

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