Indian companies will now be able to raise money from foreign regulated financial entities, including pension funds, insurance funds and sovereign wealth funds, with the Reserve Bank of India relaxing rules for offshore borrowings.
The RBI on Monday unveiled a revised external commercial borrowing (ECB) policy, entailing, among other things, a more liberal approach towards long-term foreign currency borrowings and rupee-denominated ECBs, and expansion of the list of overseas lenders. For example, it has raised the limit for small value ECBs with a three-year maturity to $50 million from the existing $20 million.
There will only be a small negative list that will not be allowed to raise funds via ECBs or rupee-denominated borrowing. This could include stock market operations, real estate activity and purchase of land.
ECBs refer to commercial loans in the form of bank loans, securitised instruments buyers’ credit, and suppliers’ credit from non-resident lenders with a minimum average maturity of three years.
According to the RBI, ECBs as a means to attract funds from abroad will continue to be a major tool to calibrate its policy towards capital account management. These guidelines will be reviewed after a year, based on the experience and evolving macro-economic situation.
To promote long-term foreign currency borrowings, the RBI said such borrowings would come with fewer restrictions on end-use. The extended term will make repayments more sustainable and also minimise roll-over risks for the borrower. Further, resident entities will enjoy a more liberal regime for rupee-denominated ECBs, where the currency risk is borne by the lender.
The list of infrastructure entities eligible for ECB has been harmonised with the list of the government.