India disallows external commercial borrowing for township projects, tightens rules
19 May 2007
Mumbai: The government has tightened overseas borrowing rules for domestic companies, making it harder for less creditworthy and smaller firms to raise funds. The government also said the use of overseas borrowings for development of integrated townships would also be stopped.
The interest rate ceiling has been lowered to 150 basis points over six-month Libor from the earlier 200 basis points for overseas borrowings by Indian companies for maturities between three and five years, the finance ministry said in a statement.
For maturities over five years the ceiling has been reduced to 250 basis points over six-month Libor from 350 basis points.
It said the ceilings had been revised in view of the upgrading of the country''s sovereign credit ratings.
"It has been decided to withdraw the exemption accorded to the development of integrated townships as a permissible end-use of external commercial borrowings(ECB)," the statement said.
The Reserve Bank of India (RBI) had been trying to cool the real estate sector in its battle against rising inflation and has asked banks to reduce their exposure to the sector.