The Telegraph
 
 
IN TODAY'S PAPER
CITY NEWSLINES
 
 
ARCHIVES
Since 1st March, 1999
 
THE TELEGRAPH
 
 
Email This Page
Tug-of-war on hike in foreign loan cap

New Delhi, Oct. 1: A tussle has broken out in the government between those who would like the cap on foreign loans for companies hiked from the current $100 million to $200 million and those who prefer the ceiling to remain in place, with fewer bureaucratic restrictions.

A high-level finance policy group will meet later this month to consider easing the cap on external commercial borrowing (ECB).

Banking secretary . S. Sisodia refused to comment on the decisions that the group — a panel comprising senior finance ministry and Reserve Bank officials that meets every three months — could take.

However, sources said there was a move backed by the industry lobby to raise the external borrowing limit to $200 million from $100 million at present. The swelling forex reserves, over $88 billion now, and improved export earnings have strengthened their case.

However, finance ministry officials dealing with the issue said they were opposed to lifting the upper limit, and would rather prune the thicket of restrictions.

“We had earlier been going slow in even clearing cases, which involved ECBs between $50 million and $100 million on advice from the policy group, but could now ease that. However, with the trade balance in August turning negative by $1 billion, we don’t see any real reason for relaxing norms,” officials said.

Last month, the government refused Reliance permission to raise a foreign loan of $500 million. Instead, it advised the Mumbai-based group to tap the domestic debt market to raise funds. The reasons cited for borrowing abroad did not convince officials.

The only major forex debt cleared in recent months was ICICI Bank’s $300-million loan, raised to help restructure the bad loans of steel companies. Several other major corporate groups, too, are unhappy with the fact they are unable to tap the external debt markets where rates are at a historical low — the benchmark US Fed rate is 1 per cent. Indian firms could raise funds at rates between 3 per cent and 4 per cent.

The government’s point is that debt in India has become cheap and short-term loans can be accessed at rates by paying only 4.5 per cent to 5 per cent for firms rated AAA.

Top
Email This Page