The Reserve Financial institution of India on Tuesday relaxed norms on end-use of funds raised by way of exterior industrial borrowings, making it extra engaging and viable for corporates together with non-banking finance corporations to boost cheaper offshore funds.
The central financial institution mentioned primarily based on suggestions from stakeholders and with a view to additional liberalise the ECB framework it has been determined to calm down the end-use restrictions and permit using funds for working capital necessities, common company functions and compensation of rupee loans.
ECBs with a minimal common maturity interval of 10 years can now be used for working capital functions and common company functions, the RBI mentioned in a launch.
“Borrowing for on-lending by NBFCs for the above maturity and end-uses can also be permitted,” it added.
A number of corporates and significantly NBFCs have been going through a extreme liquidity scarcity and unable to entry credit score from home sources during the last 10 months following the collapse of Infrastructure Leasing and Monetary Providers in September.
“For a lot of corporates and NBFCs getting sufficient liquidity has turn out to be an issue regardless that there’s a surge in systemic liquidity. That is due to the notion of credit score danger. They’re getting it (capital) however at a really excessive price,” mentioned Rupa Rege Nitsure, chief economist at L&T Monetary Providers.
With the drop in world crude oil costs, a comparatively steady foreign money and sharply decrease rates of interest in developed economies, it’s a good time to open the ECB route for home debtors, analysts mentioned.
The RBI may even permit corporates and NBFCs to make use of proceeds from ECBs with a minimal common maturity interval of seven years for compensation of rupee loans raised domestically for capital expenditure.
Borrowing for on-lending by NBFCs for the compensation of rupee loans would even be permitted, they added.
For compensation of rupee loans raised domestically for functions aside from capital expenditure and for on-lending by NBFCs for a similar, the minimal common maturity interval of the ECB must be 10 years.
The RBI may even allow corporates to make use of ECB for compensation of rupee loans raised domestically for capital expenditure within the manufacturing and infrastructure sector and categorised as particular point out accounts or non-performing property, underneath any one-time settlement association with lenders.
“Lender banks are additionally permitted to promote, via project, such loans to eligible ECB lenders,” the RBI mentioned, including that such a transfer would nevertheless have to adjust to all different norms of the broad ECB framework.
“They are not looking for solvent corporates or NBFCs to endure due to the dearth of liquidity being obtainable at an affordable price. These measures are doubtless getting used as a transitional treatment they usually could not preserve it endlessly however probably till a way of monetary stability returns,” Nitsure mentioned.