RBI to liberalise foreign borrowing norms for smaller firms/news06012012

In a move to liberalise foreign borrowing norms for smaller firms, the Reserve Bank of India (RBI) has reduced the minimum maturity period for external commercial borrowing ( ECB) up to $20 million to three years as against the earlier five years.

Earlier, there was no distinction in terms of minimum tenor for overseas loans, irrespective of the loan amount and all the overseas loans under the automatic route were required to have a minimum tenor of five years.

“Smaller players are unable to raise loans with longer maturities, as their credit worthiness is not so high.

Also, with dollar crunch in the market, it becomes more difficult for them to raise funds overseas,” said Moses Hardings, head-global research, IndusInd Bank. This segregation would help the smaller players to raise funds more easily, he added.

Hence, ECB up to $20 million should have a minimum average maturity of three years and ECB over $20 million and up to $750 million should have a minimum average maturity period of five years, RBI said.

Some experts also felt that the measure would allow better risk management for smaller firms.

“Usually, smaller firms go for overseas loans below $20 million. A reduction in minimum average maturity will allow them to meet their debt obligations early and reduce piling up of risks over long period,” said Abhishek Goenka, CEO, India Forex Advisors.

In September 2011, RBI had increased the ceiling on foreign loans that could be availed by firms under the approval route from $500 to $750 million. Any amount borrowed over $750 million via the ECB route requires approval by the regulator. The 10-year minimum average maturity norm for loans taken under the approval route remains unchanged.

The central bank has also allowed eligible borrowers to issue foreign currency convertible bonds up to $750 million, the upper limit under the automatic route.

However, specified service sectors, viz. hotel, hospital and software, can raise of foreign currency convertible bonds ( FCCBs) up to $200 million or equivalent for permissible end-uses during a financial year, subject to the condition that the proceeds should not be used for acquisition of land.
....more info