New Delhi, April 3: The government has modified the overseas borrowing norms to allow infrastructure companies, especially telecom firms, to raise short-term foreign debt.

The move will help cash-strapped telecom companies to raise funds for the spectrum auction in June or July at a time rising bad loans have impacted banks' appetite for lending, telecom ministry officials said.

Earlier this week, the RBI had allowed infrastructure companies and non-banking finance companies to raise external commercial borrowings (ECBs) with a minimum maturity of five years.

In November, the RBI had disallowed infrastructure companies from short-term foreign borrowing - typically those maturing in three to five years. Instead, it mandated access to those with 10-year maturity timeline and also rupee-denominated borrowings for three to five years.

While the relaxed provisions will enable telecom operators to raise short-term overseas debt for the upcoming spectrum sale, the rules come with a caveat that such borrowings must be fully hedged, which may make it expensive for companies to raise funds overseas, analysts said.

"Hedging costs are high in international markets and 100 per cent hedging would mean steep costs. Also, hedging products beyond one year are not liquid," said an executive from a top telecom company.

Investors can hedge against the exchange rate risk through forwards that are traded over the counter and also through futures and options contracts on exchanges. However, liquidity in contracts of more than one year is limited.

Bankers are, however, of the opinion that the RBI's move will make it easier for infrastructure companies to raise funds and refinance costlier debt as loans with shorter maturity are cheaper than long-term borrowings.