Temporary relaxations for external commercial borrowings-RBI update

The Reserve Bank of India (RBI) has announced certain liberalisation measures for raising external commercial borrowings (ECB) by Indian entities, by issuing: (i) notification dated 28 July 2022 which amends the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 (can be accessed here); and (ii) A.P. (DIR series) circular dated 1 August 2022 (can be accessed here), (together, the Amendments).

The measures come pursuant to RBI’s press release dated 06 July 2022 containing norms to be implemented for diversification and expansion of foreign funding, and for liberalisation of inflow of foreign exchange in the country. The Amendments provide the following temporary relaxations for ECBs to be raised till 31 December 2021:

1.  Increase in the automatic route limit:

Under the prior framework, eligible borrowers were permitted to raise ECBs up to USD 750 million or equivalent per financial year under the automatic route. Pursuant to the amendments, the monetary threshold for raising ECBs under the automatic route has been increased to USD 1.5 billion.

2.  Increase in the all-in-cost ceiling:

The all-in-cost for raising of ECBs is the costs involved in raising of ECBs, which shall include rates of interest, expenses, charges, guarantee fees, charges levied by export credit agencies, and other fees, whether paid in foreign currency or Indian Rupee (INR), but does not include the commitment fees or withholding tax which is payable in INR.

The all-in-cost ceiling limit for ECB has also been temporarily increased by 100 basis points (bps). Prior to the Amendments, the all-in-cost ceiling for existing ECBs linked to the London InterBank Offered Rate (LIBOR) whose benchmarks were changed to alternative reference rates (ARR), was the benchmark rate plus 550 bps spread, whereas for new ECBs, the ceiling was benchmark rate plus 500 bps spread. Benchmark rates for foreign currency denominated ECBs mean any widely accepted interbank rate or ARR of 6-month tenor, whereas the benchmark rates for Rupee-denominated ECBs mean the prevailing yield of the securities issued by the Government of India of corresponding maturity.

However, the increase in the ceiling limit by 100 bps may only be availed by eligible borrowers who have been provided an investment grade rating by Indian credit rating agencies and all other entities will have to raise ECBs within the earlier prescribed limit.

These measures are a part of RBI’s measures to stem the slide of the rupee against the United States Dollar. Further, as per RBI’s press release these measures are also expected to enhance the inflow of foreign exchange into the country, while ensuring macroeconomic and financial stability.

Authors: Souvik Ganguly, Aman Bagaria and Shrishti Mishra

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