labels: economy - general
Government tightens external commercial borrowing rules to check inflowsnews
08 August 2007

Mumbai: The government has modified the policy on external commercial borrowings (ECB) in its bid to stem the rising flow of funds. Under the revised norms, ECBs above $20 million per company would be permitted only for foreign currency expenditure for permissible end-uses of ECB.

Borrowers raising ECB over $20 million will have to park the ECB proceeds overseas for use as foreign currency expenditure for permissible end-uses. The rules would be applicable to ECB exceeding $20 million per financial year both under the automatic route and under the approval route.

ECB up to $20 million would be permitted for foreign currency expenditure on permissible end-uses under the automatic route and these funds shall be parked overseas and not remitted to India.

Borrowers proposing to avail ECB up to $20 million for rupee expenditure for permissible end-uses would require prior approval of the Reserve Bank of India under the approval route. However, such funds shall continue to be parked overseas until actual requirement in India.

All other aspects of ECB policy such as $500 million limit per company per year under the automatic route, eligible borrower, recognised lender, average maturity period, all-in-cost-ceiling, prepayment, refinancing of existing ECB and reporting arrangements remain unchanged.

These conditions will not apply to borrowers who have already entered into loan agreement and obtained loan registration numbers from the Reserve Bank. Borrowers who have taken verifiable and effective steps wherein the loan agreement has been entered into to avail of ECB in the previous dispensation, and not obtained the loan registration number may apply to the Reserve Bank through their authorised dealer.

The above amendment in ECB policy will come into force with immediate effect.

The government in consultation with the RBI is constantly reviewing the external commercial borrowing (ECB) policy to keep it in tune with the evolving macroeconomic situation, changing market conditions, sectoral requirements, the external sector and the lessons of experience.

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Government tightens external commercial borrowing rules to check inflows