The Reserve Bank of India (RBI) on Wednesday brought out a draft framework on external commercial borrowings (ECB), where it has added overseas regulated financial entities, pension funds, insurance funds, sovereign wealth funds and similar long-term investors among recognised lenders/investors.
As far as exclusions or restrictions are concerned, RBI indicated that participation of Indian banks as ECB lenders will be subject to prudential norms issued by it.
The central bank also said the minimum average maturity should be three years for ECB up to $50 million or equivalent and five years for ECB more than that. For long-term borrowings, the minimum average maturity
in case of loans and minimum maturity for bonds should be 10 years, it said.
RBI also said that the all-in cost should be 50 bps less than the existing provisions and will be subject to periodic review for normal ECBs.
The apex bank made some additions when it comes to the end-use of ECBs, which would include repayment of trade credit taken for period up to three years for capital expenditure and payment towards capital goods already shipped/imported but not paid.
The end-use of ECBs will also include purchase of second-hand domestic capital goods/plant/machinery, on-lending to infra-special purpose vehicles and for overseas direct investment in joint venture/ wholly owned subsidiaries by core investment companies coming under the regulatory framework of RBI.
Besides this, it will also be extended for on-lending to infrastructure sector and for import and/or domestic purchase of equipment for the purpose of giving the same on hire purchase, as loans against hypothecation or leasing to infrastructure sector by all NBFCs (subject to minimum 75% hedging).
With regard to pre-payment, the central bank has said that part-prepayment of ECB, including part-prepayment through fresh ECB, would also be permitted subject to conditions.
It added that refinancing of existing ECB with a fresh ECB with higher all-in-cost (but within the ceiling) would now be permitted.
As far as rupee-denominated borrowings are concerned, RBI said overseas investors will be allowed to hedge their exposure in onshore markets. Back-to-back hedging will also be allowed, it added.