The Centre, on Tuesday, tightened the norms for companies to borrow from overseas to check the rise in rupee value against other currencies by managing the flow of foreign funds into the country.

As per the changes, a company raising $20 million of External Commercial Borrowings (ECBs) would have to seek prior permission of RBI to remit such funds into India. The changes are with immediate effect, an official statement said. “Henceforth, ECB (of) more than US$20 million per borrowing company would be permitted only for foreign currency expenditure for permissible end-uses of ECB,” it said.

Park proceeds

Accordingly, companies raising ECBs of more than $20 million would have to park the proceeds overseas for use as foreign currency expenditure. This modification is applicable under both automatic and approval routes.

The rupee has risen to a nine-year high, appreciating nearly 14 per cent against the US dollar since August 2006. This has been largely due to massive inflow of foreign funds as debt and equity.

The statement said a company raising ECB of up to 20 $million under automatic route in a year could not remit such funds.

Borrowers proposing to avail ECB up to $20 million dollars for rupee expenditure would require prior approval of the Reserve Bank of India under the approval route.

“Such funds would continue to be parked overseas until actual requirement,” the statement said.