RBI eases norms for external commercial borrowing

News: Reserve Bank of India has decided to liberalise external commercial borrowing (ECB) norms.


  • Removed the sector-wise limits: RBI has allowed all eligible borrowers to raise up to $750 million per financial year ECBs under the automatic route, replacing the existing sector-wise limits.
  • List of borrowers expanded: The list of borrowers has been expanded to include all entities eligible to receive FDI.
  • List of lenders expanded: Any entity who is a resident of a country which is financial action task force compliant, will be treated as a recognised lender.
  • Maturity of borrowings: RBI has revised minimum average maturity period at 3 years for all ECBs, irrespective of the amount of borrowing, except for borrowers specifically permitted to borrow for a shorter period. Earlier, the minimum average maturity period was five years. 
ECBs refer to commercial loans in the form of bank loans, securitized instruments (e.g. floating rate notes and fixed rate bonds, non-convertible, optionally convertible or partially convertible preference shares), buyers’ credit, suppliers’ credit availed of from non-resident lenders with a minimum average maturity of 3 years.


Impact of the decision:

  • Higher funds availability: The step would increase the funds availability in India as until now RBI had capped funds raised via ECBs at 6.5% of GDP.
  • Ease of doing business: The move will lead to increase in EoDB in India.
  • Ease to cash-strapped companies: The move will bring more liquidity to cash strapped sectors and Indian airlines sector like currently struggling Jet Airways.
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