RBI proposes mkt-linked framework for ECBs

Links borrowing limit with borrower's financial strength

- ANJALI KUMARI

The Reserve Bank of India (RBI) has proposed major changes to the framework for external commercial borrowings (ECBs), linking borrowing limits to the financial strength of companies and allowing funds to be raised at market-determined interest rates.

The draft norms, issued on Friday, seek to simplify end-use restrictions and minimum average maturity (MAM) requirements while broadening the pool of eligible borrowers and lenders to facilitate greater credit flow. Reporting requirements will be streamlined to further ease compliance.

Under the proposals, eligible borrowers may raise funds up to the higher of either outstanding ECB of $1 billion, or total external and domestic borrowings up to 300 per cent of net worth, based on the latest audited balance sheet.

“The borrowing limits are proposed to be linked to a borrower's financial strength and ECBs are proposed to be raised at market-determined interest rates,” the RBI said.

The draft framework removes the all-in-cost ceiling, stipulating instead that borrowing costs must align with prevailing market conditions. In addition, the end-use restrictions and minimum maturity requirements, which have long been a sticking point for large companies, have been proposed to be simplified.