RBI proposes easier norms for overseas borrowing of long-term funds

The Reserve Bank of India (RBI) has proposed easier norms for foreign currency borrowing by Indian companies over the longer term, including an increase in the cost of servicing such loans by way of interest and fee for raising the funds. 

To encourage long-term ECBs, RBI said it is willing to permit all-in-cost (outgo by way of fee and interest), which is 50 basis points higher than that permitted for normal ECBs. In the case of normal ECBs, the all-in-cost will be 50 basis points less than the extant ceilings.

In the case of normal ECBs, the RBI will allow part-prepayment of ECB subject to conditions. Part-prepayment of ECB including part-prepayment through fresh ECB will also be permitted subject to conditions.

Further, RBI proposes to expand the list of recognised overseas lenders for external commercial borrowings (ECBs), irrespective of whether they are normal (maturity not less than three / five years), long term (minimum maturity of 10 years) or rupee denominated.

The expanded list of borrowers eligible to tap rupee denominated ECBs include real estate investment trusts and infrastructure investment trusts.
 
RBI said the expanded list of recognised lenders will include entities having long-term interest in India, including overseas regulated financial entities, pension funds, insurance funds, sovereign wealth funds and similar other long term investors.

For long-term foreign currency borrowing, RBI proposes only a negative list of end uses for long term foreign currency borrowings (minimum maturity of 10 years).

For rupee denominated borrowings, RBI prescribes more liberal stipulation for ECBs with only minimum maturity stipulations. The borrowing can be accessed for all purposes save a small negative list.

Overseas investors having an exposure to rupee denominated ECBs will be allowed to hedge them in onshore markets. Back to back hedging will also be allowed.

RBI said it would issue a framework for issuance of rupee denominated bonds overseas separately.

RBI said it would retain the existing basic structure of ECB framework for normal foreign currency borrowings with certain liberalisations made based on experience.