The Reserve Bank of India on Tuesday relaxed rules for foreign currency loans for durations of seven and 10 years.
The move can be read as a sentiment boost for companies which are fighting liquidity crunch. Currently the RBI and Sebi mandate that no single bank should be over-exposed to a corporate and therefore the central bank’s borrowing relaxation may translate to diversified fund raising.
The circular has two parts. Loans for 10 years and loans for seven years. In the former, companies can raise loans for working capital and general purposes. Non-banking financial institutions can also raise loans to on-lend for working capital or for repaying their rupee loans. The seven-year forex rule is strictly for capex raising only. Furthermore, stressed companies can raise forex loans to repay capex debt under one-time settlement.
"Based on the feedback from stakeholders and with a view to further liberalise the ECB framework, it has been decided, in consultation with the Government of India, to relax the end-use restrictions relating to external commercial borrowings for working capital requirements, general corporate purposes and repayment of rupee loans," the RBI statement said.
The central bank said that ECBs with a minimum average maturity period of seven years can be availed for repayment of rupee loans availed domestically for capital expenditure as also by NBFCs for on-lending for the same purpose. “For repayment of rupee loans availed domestically for purposes other than capital expenditure and for on-lending by NBFCs for the same, the minimum average maturity period of the ECB is required to be 10 years," it said.
According to the RBI, ECBs with a minimum average maturity period of 10 years can be used for working capital purposes and general corporate purposes and borrowing by NBFCs for the above maturity for on lending for the above purposes is also permitted.
Lenders, RBI said, are also permitted to sell, through assignment, such loans to eligible ECB lenders, except foreign branches or overseas subsidiaries of Indian banks, provided, the resultant external commercial borrowing complies with all-in-cost, minimum average maturity period and other relevant norms of the ECB framework.
What will the move practically mean? CNBC-TV18’s Latha Venkatesh feels that the impact will be more sentimental for Indian companies but multinationals might stand to gain.