To enable cheaper funds,external borrowing norms eased
To enable cheaper funds,external borrowing norms eased
RBI eased norms for ECB,getting cheaper funds from overseas market by Indian co.Now RBI agreed to a uniform,all-in cost ceiling of 450 bps over BMR,that,is 6-month LIBOR. BMR for rupee-denominated bonds will be prevailing yield of govt bonds of corresponding maturity.Liability: equity:: 7:1(from 4:1).HFCs also helped. It is decided to increase the ECB Liability to Equity Ratio for ECB raised from direct foreign equity holder under the automatic route to 7:1(from 4:1,bank's was required for better ratio). This ratio will not be applicable if total of all ECBs raised by an entity is up to $5 million or equivalent.
Liability to equity ratio for External Commercial Borrowings(ECBs) under the automatic route raised to 7:1, from 4:1
The Reserve Bank of India(RBI) eased the norms for external commercial borrowings(ECB),resulting in getting cheaper funds from overseas market by Indian companies. Due to the new norms, the RBI has agreed to a uniform, all-in cost ceiling of 450 basis points (bps) over the benchmark rate(BMR), which, in most cases, is the six-month London Interbank Offered Rate (LIBOR). The benchmark rate for rupee-denominated bonds will be the prevailing yield of government bonds of corresponding maturity.
It is decided to increase the ECB Liability to Equity Ratio for ECB raised from direct foreign equity holder under the automatic route to 7:1(from 4:1,bank's was required for better ratio). This ratio will not be applicable if total of all ECBs raised by an entity is up to $5 million or equivalent.
Simplification of external commercial borrowing (ECB) guidelines has opened a new window of funding for home finance companies(HFCs) and port operators in India, increasing the prospects of a fresh round of overseas borrowings. Also, all housing finance companies regulated by the National Housing Bank and Port Trusts are now eligible to raise ECB under all tracks.
“Such entities shall have a board-approved risk management policy and shall keep their ECB exposure hedged 100% at all times for ECBs raised under Track I,” RBI said. Further, companies engaged in the business of maintenance, repair and overhaul and freight forwarding have been allowed to raise ECBs denominated in rupee only.
Funds raised through ECBs may not be invested in real estate or used for purchase of land except for affordable housing, construction and development of SEZ and industrial parks or integrated townships, RBI said.
Separately, the RBI also relaxed norms for foreign investment in bonds after some weekly auctions failed to attract investor interest. The investment cap that barred foreign portfolio investors from investing in government bonds with a minimum residual maturity of three years, has been withdrawn. Ref. : http://www.thehindu.com/todays-paper/tp-miscellaneous/tp-others/external-borrowing-norms-eased-to-enable-cheaper-funds/article23715240.ece --- Apr'29,2018.
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