RBI reins in norms for foreign fund tap

RBI reins in norms for foreign fund tap

Shuts bonds buyback window as well

With this, the Reserve bank has further signified its intent to end the quantitative measured introduced last year at the height of global financial crisis.  In a notification issued last evening, RBI also made it clear that companies using the ECB window to raise funds for over five years would be allowed to pay up to 500 basis points over Libor.

Current regulations

That apart, the central bank also decided to shut the special window that allowed companies to buy back foreign currency convertible bonds (FCCBs) to reduce debt burden at the height of the global financial crisis after the collapse of Lehman Brothers in US.

It may be noted that the reintroduction of the cost ceiling and withdrawal of the FCCB buyback facility are the latest in a series of rollbacks RBI introduced from October onwards consequent to improvement in economic environment.  It started with the reverting to a statutory liquidity ratio (SLR) of 25 per cent for all domestic banks.

As per the current ECB norms, Non-Banking Finance Companies (NBFCs) – which are exclusively involved in the financing of the infrastructure sector – are permitted to avail of ECBs from multilateral, regional financial institutions and government-owned development financial institutions for on-lending to borrowers in the infrastructure sector under the approval route.  

In view of the thrust given to development of infrastructure sector, it has been decided with immediate effect to allow Non Banking Financial Companies exclusively involved in financing the infrastructure projects to avail of ECB from the recognised lender category including international banks under the approval route, subject to complying with the prudential standards prescribed by the Reserve Bank and the borrowing entities fully hedging their currency risk.

Eligible borrowers

Further, Reserve Bank of India has now been decided to permit eligible borrowers in the telecommunication sector to avail of ECB for the purpose of payment for Spectrum allocation. This modification will come into effect with immediate effect.
All other aspects of ECB policy such as US$500 million limit per company for a financial year under the automatic route, eligible borrower, recognised lender, end-use, average maturity period, prepayment, refinancing of existing ECB, reporting arrangements and terms and conditions stipulated in the circulars shall remain unchanged.