Infrastructure sector and external borrowing rules

On 23 September, the Reserve Bank of India (RBI) released a draft framework on external commercial borrowing (ECBs), which aims to replace the existing framework with a more rational and liberal one. Separately, on 29 September, the RBI released a policy framework for issuance of rupee denominated bonds overseas. The focus below is on the draft framework released on 23 September.

Unlike the existing regime, the draft framework divides ECBs into three categories: (a) normal ECBs, which are the ECBs under the existing ECB policy; (b) long-term ECBs, i.e. those with a minimum maturity of 10 years; and (c) rupee denominated ECBs.

For normal ECBs, the draft framework has elaborated on the list of recognized lenders to include, amongst others, overseas regulated financial entities, pension funds, insurance funds and sovereign wealth funds. The scope of end-uses has also been expanded to include, amongst others: repayment of trade credit taken for a period of up to three years for capital expenditure; payment of capital goods already shipped or imported but not paid for; on-lending to the infrastructure sector; import and/ or domestic purchase of equipment for the purpose of hire purchase, as loans against hypothecation, etc., by non-banking financial companies (subject to a minimum of 75% hedging); and purchase of second-hand domestic capital goods, plant and/or machinery.

Saurabh Bhasin is a partner at Trilegal and Suchita Saigal is a senior associate. Trilegal is a full-service law firm with offices in Delhi, Mumbai, Bangalore and Hyderabad.