The Telegraph
Since 1st March, 1999
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Overseas loan prop for India Inc

New Delhi, Jan. 16: The government has decided to raise the overall external commercial borrowing (ECB) limit of companies for the current financial year by $4 billion.

Senior finance ministry officials said the limit would be raised to $22 billion from $18 billion at present.

They said the ministry would write to the Reserve Bank of India (RBI), which would notify the order.

“An in principle decision has been taken ... we will be communicating to the RBI soon,” officials said.

The move follows the recent RBI initiative to raise the investment cap of foreign institutional investors (FIIs) in government securities (G-secs). The central bank had allowed portfolio investors to pump in up to $2.6 billion in G-secs by December 31, 2006 as against $2 billion earlier, and further up to $3.2 billion by the end of March 2007.

The RBI, in a notification of November 4, 2006, liberalised the ECB guidelines to let a company raise $250 million more than the cap of $500 million during a financial year under the automatic route. The average loan tenure for $250 million was more than 10 years, while it was five years for loans up to $500 million.

However, the extra ECB will be ineligible for prepayment and call/put options. The RBI, however, also raised the limit on prepayment of ECBs to $300 million from $200 million without its prior approval.

In June last year, the government had announced the change in rules on ECBs, allowing non-banking financial companies (NBFCs) to tap funds for infrastructure projects and housing finance companies to issue foreign currency convertible bonds.

During its recent pre-budget consultations with finance minister P. Chidambaram, industry chambers had demanded raising the ECB limit for the private sector to swap high cost internal borrowings.

However, Chidambaram had then said he would not prefer an increase in foreign debts as higher foreign exchange inflow would merely add to inflation.

With forex reserves now touching $176.58 billion, the government and the RBI are gradually opening the window for companies to raise funds overseas.

Finance ministry officials said the needs of corporate houses, which are expanding rapidly, and the necessity to maintain the growth momentum had overridden inflation concerns.

For the week ended January 5, 2007, the country’s foreign exchange reserves decreased by $666 million to $176.585 billion from $177.251 billion in the week ended December 29. Reserves were up by $1.018 billion.

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