Easier norms for companies wanting to raise money through external commercial borrowings (ECBs) is set to open the door for a lot of Indian entities, especially NBFCs,toborrowfrom abroad and at a lower cost.
Late on Wednesday evening, the Reserve Bank of India (RBI) reduced the ECB maturity tenor, increased borrowing limits and removed qualification restrictions for companies wanting to borrow funds from abroad, boosting the chances of thesecompaniestoborrow from overseas.
Harry Parikh, associate partner, transaction tax services, BDO India, said the liberalised norms open up the opportunity for companies from the service sector as well as limited liability partnerships the Game All entities eligible to receive FDI can borrow under ECB framework (LLPs) to access borrowings from abroad.
“This would enable entities entitled to receive FDI to avail of ECB. Also, the list of eligible lenders has been expanded.This move seems to be the exchequer’s attempt to pump up the foreign inflows. Ramifications on the Indian lending market will have to be seen because with the withdrawing liquidity in the industry, this change will automatically step up competition in the banking sector,” Parikh said.
RBI has expanded the list of eligible borrowers allowing all entities eligible to receive FDI to borrow under the ECB framework.
Further, all eligible borrowers can now get funds up to $750 million or equivalent per financial year under the automatic route, replacing the existing sector-wise limits. It also set the minimum average maturity period at three years for all ECBs regardless of the amount.
Previously, companies could only borrow up to $50 million for three years. For funds beyond $50 million, companies had to borrow for at least five-year maturity.
“Besides the easier borrowing limit, the new norms also allow lenders from any Financial Access Task Force (FATF)compliant entity as a recognised lender. This increases options for the borrowers. It has been also clarified that housing companies just need to have an affordable housing project and to access fundsfromabroad.Theonlything thatneedsclarificationiswhether overseas borrowings can be used to pay back rupee loans,” said Hitendra Dave, head, global banking and markets at HSBC India.
It is expected that even lower rated companies will seriously look at ECB as a funding option after the new guidelines.