Mumbai : In order to encourage overseas funding, RBI proposed to allow domestic companies to borrow money from pension funds, sovereign wealth funds (SWFs) and insurance funds as part of the ECBs.
The draft framework on External Commercial Borrowings (ECBs), however, proposed to lower the all-in cost borrowing by 0.50% to ensure that the funds are borrowed from abroad at a reasonable interest rate.
The modification in the ECB guidelines on which RBI has invited comments till October 1 are aimed at replacing the ECB policy with a more rational and liberal framework, keeping in view the evolving domestic as well as global macroeconomic and financial conditions, challenges faced in external sector management and the experience gained so far, the draft guidelines added.
The basic thrust of the revised framework, RBI said, is to retain more qualitative parameters for the normal (foreign currency denominated) ECB and to provide more liberal dispensation for long-term borrowings in foreign currency.
According to the draft guidelines, there will only be a small negative list which include stock market operations, real estate activity and purchase of land. They will not be allowed to raise resources through ECBs and rupee denominated borrowing. The framework for the rupee denominated bonds will be announced separately, it said, adding the real estate investment trust and Infrastructure Investment Trust will be permitted to raise funds through these instruments.
The currency risk with regard to rupee denominated ECB lies with the lender or investor and hence the modified framework provides for minimal control for these borrowings. RBI proposed to expand the list of recognised ECB lenders by including overseas regulated financial entities, pension funds, insurance funds, sovereign wealth funds and similar other long-term investors.
