The Reserve Bank of India has come out with a new external commercial borrowing (ECB) framework allowing all eligible borrowers to raise up to $750 mn per fiscal under the automatic route, replacing the existing sector-wise limits. It has also expanded the list of eligible borrowers and recognised lenders. This is likely to improve the ease of doing business.
The framework provides a special dispensation to public sector oil marketing companies to curb volatility in the forex market arising out of dollar demand for crude oil purchases, according to reports in Indian business dailies. It allows them to raise ECB, with an overall ceiling of $10 bn, for working capital purposes with a minimum average maturity period (MAMP) of three years under the automatic route without mandatory hedging and individual limit requirements. The list of borrowers has been expanded to include all entities eligible to receive foreign direct investment.
Additionally, port trusts, units in special economic zones (SEZs), the Small Industries Development Bank of India (SIDBI), the Exim Bank and registered entities engaged in microfinance activities can also borrow under this framework. The minimum maturity period for the ECB will be three years. The framework allows manufacturing companies to raise up to $50 mn per financial year with a maturity period of one year.
Further, if the ECB is raised from a foreign equity holder and utilised for working capital, general corporate purposes or repayment of rupee loans, the maturity period will be five years. As per the policy, call and put option, if any, cannot be exercised prior to the completion of the minimum average maturity.