Mumbai, Oct. 22: The Reserve Bank of India today relaxed rules relating to external commercial borrowings by raising the limit on rupee expenditure in the case of all borrowers to an equivalent of $500 million per year.

In September, the limit on rupee expenditure by infrastructure companies had been raised to $500 million from $100 million under the automatic route. This dispensation is now being extended to all borrowers. The amendments will take effect immediately.

The move will enable companies to tap overseas borrowings at a time when banks are finding it hard to cope with the rising demand for credit.

At the same time, the RBI decided to scrap the minimum maturity period of seven years for ECBs of more than $100 million for rupee expenditure on infrastructure. Telecom companies have also been allowed to borrow money in the form of ECBs to pay for 3G licences that will be auctioned later this year.

This is the fourth time that the ECB rules are being tweaked this year as the authorities scramble to find ways to enhance overseas fund flows into the country.

The RBI said the borrowers would now have the freedom to decide whether to park the money overseas or bring it to India and deposit it in rupee accounts with category I banks till they need to draw on it for permissible end-uses.

The borrowers will not be permitted to invest it in capital markets and real estate or use it for inter-corporate lending during the interim period before end-use. Earlier, the money had to be parked abroad till it was required to be spent on projects in the country.

The RBI also relaxed the upper ceiling of interest rates on ECBs “in view of the tight liquidity conditions in the international finance markets”, a late night press release said.

For loans with a maturity period of three years and up to five years, the ceiling is being raised from 2 percentage points above the London Inter-Bank Offer Rate (Libor) to 3 percentage points. The six-month libor rate for the dollar is at 3.48 per cent.

The interest cap for loans with a tenure between five and seven years will go up from 3.5 percentage points above Libor to 5 percentage points. The rate ceiling on loans with a maturity of over seven years will go up from 4.5 percentage points to 5 percentage points above Libor. “The ceilings will be reviewed depending on the conditions in the international markets,” the release said.

Banks will also put in place a system to monitor the unhedged foreign exchange exposures of small and medium enterprises.