RBI eases hedging norms for external commercial borrowings
27 November 2018
The Reserve Bank of India (RBI) on Monday partially eased a requirement for companies to hedge dollars while raising funds from overseas markets - a move that will encourage companies to raise funds offshore and reduce demand for dollars in the domestic market.
RBI said companies would now be required to hedge 70 percent of their external commercial borrowings (ECB) for maturity periods of three to five years, instead of the full exposure.
RBI, which has reviewed the extant provisions, decided, in consultation with the government, to reduce the mandatory hedge coverage from 100 per cent to 70 per cent for ECBs raised under Track I of the ECB framework by eligible borrowers, for a maturity period between 3 and 5 years.
Further, it the RBI also clarified that ECBs falling within the aforesaid scope but raised prior to the date of this circular will be required to mandatorily roll-over their existing hedge(s) only to the extent of 70 per cent of outstanding ECB exposure.
All other provisions of the ECB policy remain unchanged. RBI said.
The move should help to support the rupee, which has fallen nearly 10 percent against the dollar since the beginning of the year, by attracting dollar inflows.
In a similar move last month, India allowed state oil marketing firms to raise $10 billion in overseas loans without hedging the dollars.