Easier norms for companies wanting to raise money through external commercial borrowings (ECBs) is set to open door for a lot of Indian entities, especially NBFCs, to borrow from abroad and at a lower cost.Late on Wednesday evening, Reserve Bank of India (RBI) reduced ECB maturity tenor, increased borrowing limits and removed qualification restrictions for companies wanting to borrow funds from abroad, boosting chances of these companies to borrow from overseas.Harry Parikh, associate partner, transaction tax services, BDO India, said liberalised norms open up opportunity for companies from service sector as well as limited liability partnerships (LLPs) to access borrowings from abroad.This would enable entities entitled to receive FDI to avail of ECB.
Also, list of eligible lenders has been expanded.
This move seems to be exchequers attempt to pump up foreign inflows.
Ramifications on Indian lending market will have to be seen because with withdrawing liquidity in industry, this change will automatically step up competition in banking sector, Parikh said.RBI has expanded list of eligible borrowers allowing all entities eligible to receive FDI to borrow under ECB framework.Further, all eligible borrowers can now get funds up to $750 million or equivalent per financial year under automatic route, replacing existing sector-wise limits.
It also set minimum average maturity period at three years for all ECBs regardless of amount.Previously, companies could only borrow up to $50 million for three years.
For funds beyond $50 million, companies had to borrow for at least five-year maturity.Besides easier borrowing limit, new norms also allow lenders from any Financial Access Task Force (FATF)- compliant entity as a recognised lender.
This increases options for borrowers.
It has been also clarified that housing companies just need to have an affordable housing project and to access funds from abroad.
The only thing that needs clarification is whether overseas borrowings can be used to pay back rupee loans, said Hitendra Dave, head, global banking and markets at HSBC India.It is expected that even lower rated companies will seriously look at ECB as a funding option after new guidelines.