The government will raise the annual ceiling on external commercial borrowings ( ECBs) to accomodate it for power, aviation and low-cost housing and highways maintenance announced in the Budget. This is being done to make less costly credit available to corporates and help them overcome liquidity problems in the domestic market.
At present, the government allows companies to raise ECB with an annual ceiling of $30 billion. The finance ministry (FM) and the Reserve Bank of India ( RBI) will enhance this ceiling temporarily to provide a cushion to companies that are finding hard to raise domestic debt at competitive rates.
'Since the domestic credit availability will be reduced by government borrowings, the Budget has provided a window for raising low-cost funds abroad. The limit on ECBs will be increased to enable specific sectors borrow funds overseas,” the official said.
He emphasised that these relaxations are temporary. The additional credit is needed to augment credit supply as a large chunk of domestic credit will be appropriated by the government in the form of higher borrowings. The finance ministry plans to borrow Rs5.7 lakh crore next fiscal to bridge the fiscal deficit pegged at 5.1%.
In the current fiscal, so far, deposits mobilised by the banking system were Rs7.5 lakh crore so far. Since banks typically lend from funds raised through deposits, after buying government bonds, they will be left with limited resources to fund the corporate sector.
In the Budget 2012-13, FM Pranab Mukherjee allowed the ECBs for low-cost housing projects and to airlines for meeting their working capital needs for a year.
B
esides, power companies have been permitted to part finance rupee debt of existing projects, while road construction firms can borrow abroad to meet capital expenditure on the maintenance and operations of toll systems.
The changes would be a boon for the power sector where several domestic banks have reached the outermost sectoral cap levels and are unable to fund more. With ECB being allowed to retire rupee debt of power sector, banks would be able to realese additional finances to the sector.
As an additional benefit, the Budget has reduced the rate of withholding tax on interest payments on ECBs to 5% from 20% for three years.
The RBI will unveil details on the new sectors that have been permitted to raise ECBs. Besides the sectoral caps, for instance the $1-billion cap for aviation sector, these companies will be permitted ECBs for a limited time period until domestic credit availability increases and borrowings by the government fall.
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At present, the government allows companies to raise ECB with an annual ceiling of $30 billion. The finance ministry (FM) and the Reserve Bank of India ( RBI) will enhance this ceiling temporarily to provide a cushion to companies that are finding hard to raise domestic debt at competitive rates.
'Since the domestic credit availability will be reduced by government borrowings, the Budget has provided a window for raising low-cost funds abroad. The limit on ECBs will be increased to enable specific sectors borrow funds overseas,” the official said.
He emphasised that these relaxations are temporary. The additional credit is needed to augment credit supply as a large chunk of domestic credit will be appropriated by the government in the form of higher borrowings. The finance ministry plans to borrow Rs5.7 lakh crore next fiscal to bridge the fiscal deficit pegged at 5.1%.
In the current fiscal, so far, deposits mobilised by the banking system were Rs7.5 lakh crore so far. Since banks typically lend from funds raised through deposits, after buying government bonds, they will be left with limited resources to fund the corporate sector.
In the Budget 2012-13, FM Pranab Mukherjee allowed the ECBs for low-cost housing projects and to airlines for meeting their working capital needs for a year.
B
esides, power companies have been permitted to part finance rupee debt of existing projects, while road construction firms can borrow abroad to meet capital expenditure on the maintenance and operations of toll systems.
The changes would be a boon for the power sector where several domestic banks have reached the outermost sectoral cap levels and are unable to fund more. With ECB being allowed to retire rupee debt of power sector, banks would be able to realese additional finances to the sector.
As an additional benefit, the Budget has reduced the rate of withholding tax on interest payments on ECBs to 5% from 20% for three years.
The RBI will unveil details on the new sectors that have been permitted to raise ECBs. Besides the sectoral caps, for instance the $1-billion cap for aviation sector, these companies will be permitted ECBs for a limited time period until domestic credit availability increases and borrowings by the government fall.
....more info