The Reserve Bank of India (RBI) on Monday released the final guidelines on external commercial borrowings (ECBs), rationalising fundraising through the route.
“The amended regulations have rationalised the ECB framework by expansion of eligible borrowers and recognised lender base, rationalisation of borrowing limits and restrictions on average maturity period, removal of restrictions on the cost of borrowing for ECBs, review of end-use restrictions and simplification of reporting requirements,” the RBI said.
The regulator had issued the draft guidelines regarding the same on October 3.
Under the new guidelines, companies can raise ECBs of up to $1 billion or 300% of net worth, whichever is higher, compared to the prior $750-million annual cap. The RBI also mandates that eligible borrowers raise ECBs with a minimum average maturity period of three years. Manufacturing sector borrowers are allowed to raise ECBs with a 1-3 year average maturity, provided the outstanding amount does not exceed $150 million.
The regulator said the cost of borrowing through ECBs should be market determined. In the case of fixed-rate loans, the floating rate plus spread of the corresponding swap shall not be more than the ceiling, the RBI said.
The regulator expanded the borrower and lender base eligible for ECB transaction. The RBI proposed permitting any entity, including firms under restructuring or investigation, to raise funds through ECBs.
Proceeds of ECBs can be utilised in deposit or other debt instruments with maturity of up to one year, according to the new guidelines.
The RBI also restricts the end use of borrowed funds through the overseas route — funds should not be utilised for chit funds, Nidhi company, real estate business and construction of farmhouses, and investment in stock market, among others, the RBI said.