RBI eases overseas borrowing rules for local companies

The Reserve Bank of India (RBI) on Monday relaxed overseas borrowing norms for Indian companies allowing offshore insurance companies, pension funds and sovereign wealth funds to lend to local companies for the long term.

RBI said the overarching principles of the revised framework are a more liberal approach, with fewer restrictions on end uses, higher all-in-cost ceiling, etc, for long term foreign currency borrowings as the extended term makes repayments more sustainable and minimises roll-over risks for the borrower.

Similarly, a more liberal approach for Indian rupee denominated ECBs where the currency risk is borne by the lender.

Expanded list of overseas lenders will now include long term lenders like sovereign wealth funds, pension funds, insurance companies.

There is only a small negative list of end-use requirements applicable to long-term ECBs and rupee denominated ECBs.

RBI has raised limit for small value ECBs with minimum average maturity (MAM) of three years to $50 million from the existing $20 million, and aligned the list of infrastructure entities eligible for ECB with the harmonised list of the Government of India.

The framework for ECB as a means to attract flow of funds from abroad will continue to be a major tool to calibrate the policy towards capital account management in response to evolving macro-economic situation, RBI said, adding that the guidelines will be reviewed after one year based on the experience and evolving macro-economic situation.