RBI move: Easier ECB norms may boost capital inflows

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Mumbai | Published: September 20, 2018 5:53:45 AM

The Reserve Bank on Wednesday relaxed external commercial borrowing (ECB) norms for a certain category of firms and allowed Indian banks to market rupee-denominated (masala) bonds.

Eligible companies in the manufacturing sector will now be allowed to raise ECBs up to million or its equivalent with minimum average maturity period of one year. (PTI)

The Reserve Bank on Wednesday relaxed external commercial borrowing (ECB) norms for a certain category of firms and allowed Indian banks to market rupee-denominated (masala) bonds, giving effect to steps announced by the government last week to stimulate capital inflows to prop up the rupee.

Eligible companies in the manufacturing sector will now be allowed to raise ECBs up to $50 million or its equivalent with minimum average maturity period of one year, against the earlier period of three years, the RBI said. While many experts feel it might take some time for ECBs under the new policy to be accessed, some large players unable to get funds from domestic banks might start using this route in the coming months.

They said the move could trim hedging costs of mid-sized firms and also enable them to raise money for a short period, with the scope to roll it over, if required. Firms could also tap the overseas market more frequently and be in a better position to retire high-cost, long-term ECBs through short-term cheaper loans.

According to the revised norms, Indian banks can an “participate as arrangers/ underwriters/ market makers/ traders” in the masala bonds issued overseas subject to applicable prudential norms. Currently, these banks can act only as arranger/ underwriter for such bonds and in case of underwriting an issue, their holding cannot be more than 5% of the issue size after 6 months of issue.

The fund-raising via ECBs holds prospect of higher capital inflows given that domestic banks are wary about their lending practices after the RBI tightened the stressed assets norms. ECBs include bank loans, securitised instruments, buyers’ or suppliers’ credit, foreign currency convertible bonds, financial lease and foreign currency exchangeable bonds.

The rupee which had almost touched 73 on Tuesday, bounced back on Wednesday y 61 paise to end at 72.37 against the dollar.

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