External Borrowing Norms eased to enable Cheaper Funds

The Reserve Bank of India has liberalised the norms for external commercial borrowings, allowing Indian companies to access cheaper funds from overseas markets.

According to the new norms, the central bank has stipulated a uniform, all-in cost ceiling of 450 basis points (bps) over the benchmark rate, which, in most cases, is the six-month London Interbank Offered Rate (LIBOR). The benchmark rate for rupee-denominated bonds will be the prevailing yield of government bonds of corresponding maturity.

Also, all housing finance companies regulated by the National Housing Bank and Port Trusts are now eligible to raise ECB under all tracks.

RBI also said funds raised through ECBs may not be invested in real estate or used for purchase of land except for affordable housing, construction and development of SEZ and industrial parks or integrated townships.

The norms also restricted ECB funds from being invested in the share market and equity investments. On-lending to entities for the above activities is also not allowed.

Separately, the RBI also relaxed norms for foreign investment in bonds after some weekly auctions failed to attract investor interest. The investment cap that barred foreign portfolio investors from investing in government bonds with a minimum residual maturity of three years, has been withdrawn.

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