RBI revises maturity and hedging norms for external commercial borrowings

Reserve bank of India (RBI) has announced a downward revision in the minimum average maturity requirement for overseas commercial borrowings from 5 years at present to three years under the infrastructure financing scheme. 

RBI also reduced the average maturity requirement for exemption from mandatory hedging provision applicable to ECBs raised by such borrowers from 10 years to 5 years. 
Till now, eligible borrowers raising foreign currency denominated ECBs under Track I, having a minimum average maturity requirement of 5 years, were mandatorily required to hedge their ECB exposure fully, RBI stated in a release today.
This is applicable to “external commercial borrowings, trade credit, borrowing and lending in foreign currency by authorised dealers and persons other than authorised dealers”, as amended from time to time, RBI stated 
RBI said it has reviewed the extant provisions and it has been decided, in consultation with the Government of India, to amend the following provisions of the ECB framework:
  • Reduce the minimum average maturity requirement for ECBs in the infrastructure space raised by eligible borrowers from 5 years to 3 years; and
  • Reduce the average maturity requirement from extant 10 years to 5 years for exemption from mandatory hedging provision applicable to ECBs raised by eligible borrowers. 
Accordingly, the ECBs with minimum average maturity period of 3 to 5 years in the infrastructure space will have to meet 100 per cent mandatory hedging requirement. Further, it is also clarified that ECBs falling under the aforesaid revised provision but raised prior to the date of this circular will not be required to mandatorily roll-over their existing hedges.
All other provisions of the ECB policy remain unchanged. AD Category - I banks should bring the contents of this circular to the notice of their constituents and customers.