In a move, which could provide additional liquidity to Indian companies and ease borrowing from outside India, the government is set to allow promoters of Indian companies to pledge shares against external commercial borrowings (ECBs).
The move will also ensure additional security to the ECB lenders and enable infrastructure companies, who are the highest recipients of overseas loans, raise ECBs easily.
The move is part of the new Foreign Exchange Management Act (Fema) guidelines, which is being amended after 10 years. However, RBI has directed that no person would be allowed to pledge shares if he doesn?t have a no-objection certification (NOC) from a bank, which is an authorised dealer.
The bank will grant NOC to Indian companies for share pledging after it is satisfied that the underlying ECB is strictly in compliance with the current ECB guidelines and loan agreement is duly signed by both lender and the borrower, respectively.
After touching a record high of $3,201,303,488 in December, external commercial borrowings (ECBs) by Indian companies dropped 15.36% month-on-month in January.
According to Reserve Bank of India (RBI) data released on Thursday, ECB mobilizations in January amounted to $2,709,292,776.
ECBs include bank loans, suppliers? and buyers? credits, fixed and floating rate bonds without convertibility and borrowings from private sector windows of multilateral financial institutions.
An analyst said that in December, the amount raised by Indian firms by way of ECBs had touched a record high because it was the year-end and many foreign banks resort to a lot of ECB lending. That was not the case in January. Many foreign banks, primarily Asian, are reaching their ECB limits for India. However, ECB mobilisations are expected to fall further in the coming months.