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Finance firms seek review of ECB bar

Mumbai, Nov. 30: Non-banking finance companies (NBFCs) have asked the finance ministry to reconsider the decision to stop them from raising external commercial borrowings (ECBs).

The firms have pushed their case through Finance Industry Development Council, a self-regulatory organisation. They have, in a recent presentation to finance minister Jaswant Singh, said the revised guidelines prohibiting them from raising external commercial borrowings would adversely affect the industry.

They said there is a constraint in availability of long-term funds in the domestic markets and the domestic funds raised cannot be deployed for investment in the infrastructure sector as it results in an asset-liability mismatch.

While banks raise funds from public in the form of short and medium-term deposits, for NBFCs, the refinance from banks is in the form of working capital loans for one year. Moreover, fixed deposits, the other mode of financing available to such companies, are also for a period of one year. Therefore, the only option is to mobilise long-term resources internationally to deploy in international projects.

Many NBFCs are involved in financing the core sector. The council said many infrastructure projects have been finalised considering external commercial borrowings as a source of funds and prohibiting such borrowings may even lead to these firms abandoning the project.

The organisation, therefore, asked the ministry to allow NBFCs to raise external commercial borrowings, which can be limited to financing of equipment and infrastructure projects. It also called for setting a reasonable band of interest in the region of 275-300 basis points above Libor for such loans.

Recently, the government had imposed end-use restrictions on all foreign loans over $50 million, apart from bringing down the interest rate spread from 300-450 points to 150-300 points over the six-month Libor.

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