No ECBs land after Sept ’07

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In the past eight months, despite no written ban, no Indian company could bring in a single dollar from their approved external commercial borrowings. On the face of it, companies, which are sanctioned the loans, are permitted to bring in tranches of $20 million as per the policy statement, but this has not happened, as RBI has simply put the applications in queues that have just not moved forward.

The unusual interpretation of the capital control regime means the overseas debt market has been virtually shut off for Indian companies. Merchant bankers were unwilling to be quoted on this, but acknowledged that after Mastek’s foreign currency convertible bonds, cleared in September 2007, no other plain vanilla ECB or foreign currency convertible bond (FCCB) proceeds have come into India. They said the revision in ECB policy guidelines, made in August 2007, had restricted the companies from bringing in more than $ 20 million at one go, but RBI has informally blocked off even this slim avenue.

The subject could figure in the government’s high-level committee on ECBs expected to meet this month. The committee includes the finance secretary, an RBI deputy governor as a special invitee and other senior finance ministry officials. Officials said the committee was unlikely to recommend easing of restrictions on foreign debt inflows immediately. The committee is responsible for framing policies relating to ECBs. An official close to the development said while the pressure from foreign capital has considerably reduced, prevailing domestic conditions were not good enough to allow its entry. “There is already a high amount of liquidity in the banking system and allowing more foreign capital to flow in would worsen the situation,” he said.

Current regulations allow a single company to raise up to $500 million ECBs and FCCBs in a year, out of which only $20 million can be brought into India. As per the revised ECB regulations of August 2007, companies wanting to convert up to $20 million external loans into rupee assets require RBI’s prior approval. Till then, these funds have to be parked overseas until actual requirements emerge in India.