Reserve Bank amends ECB policy

The Reserve Bank of India (RBI) has brought in changes to the policy governing external commercial borrowings (ECBs), though its circular 19 of 9 December 2009. The previous policy permits eligible borrowers to raise funds in the form of ECBs from recognized lenders at a mutually agreed rate, under the approval route. The RBI has now decided to change this arrangement, fixing all-in-cost ceilings under the approval route for loan agreements entered into from 1 January, as shown in the table.

Where an eligible borrower seeks to use ECBs and has entered into a loan agreement on or before 31 December 2009, with the all-in-cost ceiling exceeding the newly specified limits, the borrower should provide a copy of the loan agreement to the RBI for the application to be considered under the approval route.

Under the new amendment, non-banking financial companies exclusively involved in financing the infrastructure sector can borrow from any eligible lender under the approval route, after complying with applicable prudential standards and fully hedging the currency risk of the loan. Previously they were permitted to raise ECBs only from multilateral or regional financial institutions, or from developmental financial institutions owned by the government.

The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.