The government has raised by 60% the annual limit on external commercial borrowings (ECBs) by Indian companies to $35 billion, from the current $22 billion. Companies that already have permission to raise overseas loans will benefit immediately from this move.
?The overall limit on ECBs has been raised to $35 billion,? economic affairs secretary Ashok Chawla confirmed to reporters on Thursday, a day after RBI announced a significant relaxation in ECB policy that allowed companies to repatriate up to $500 million through the automatic route.
Finance minister P Chidambaram said the relaxation in rules should encourage companies to repatriate external funds as early as possible. ?Now, RBI has allowed those who have raised money abroad to use it either for foreign exchange expenditure or bring it into India for rupee expenditure. A number of people have told me that they are likely to bring (funds) back for rupee expenditure. I hope they will,? he said.
RBI has also raised the interest rate ceiling for such loans, making it easier for companies to raise funds. The step is in sync with government efforts to ensure that avenues for bringing in dollars are more robust.
The finance minister was confidant that banks would resume brisk lending as liquidity has returned to the market. ?If you go by the reverse repo, I think there is adequate liquidity. The point now is banks should not park excess funds with Reserve Bank. They have been advised to lend,? he said. On Thursday, banks deposited Rs 43,650 crore with RBI via its 6% reverse repo.
Meanwhile, clarifying a statement made by the finance minister on Thursday morning about the unwinding of short positions taken by FIIs by lending stocks in overseas markets, a senior Sebi official said the regulator has not asked FIIs to unwind their previous positions as data is not yet available.
The deadline to submit this data was Thursday evening. Once this is analysed, there will be more clarity. Since FIIs were directed to not take any fresh positions, the regulator would be forced to ask them to unwind if they violate this directive, the official added.
Chidambaram had said, ?Sebi has told (FIIs) now that it disapproves of lending to offshore entities, and asked them to reverse those transactions. I am told that those transactions are likely to be reversed over the next few days.?
FIIs, in their meeting with Sebi on Thursday, had said they would want the domestic stock lending & borrowing mechanism to be made more robust. On this issue, Sebi stated on October 20 that it is reviewing the difficulties in the use of the mechanism and would take steps to make it more effective. Sebi has now sought data from the exchanges and will soon announce measures in this direction.
The 30-share Sensex has fallen by more than 50% with FIIs selling a net $12.2 billion in equities this year to date, compared with 2007?s record net inflow of $17.4 billion.
This has put downward pressure on the rupee, which ended 1% lower at 49.81/82 on Thursday.