Draft framework proposes lowering of cost borrowing for ECBs
Q. Draft framework on ECBs issued by the RBI proposes to lower all in cost borrowing by:- Published on 24 Sep 15a. 0.40 percent
b. 0.50 percent
c. 0.60 percent
d. 0.70 percent
ANSWER: 0.50 percent
RBI proposed to allow domestic firms to take money from pension funds, insurance funds and SWFs as part of ECBs. Draft framework of ECB proposed to lower all in cost borrowing by 0.50 percent to make sure funds are borrowed at reasonable interest rate from abroad. Basic goal of the framework is to retain more qualitative parameters for normal foreign currency denominated ECB and provide liberal dispensation for long term foreign currency borrowings. 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 not be allowed to raise resources through ECBs and rupee denominated borrowing. RBI suggested 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. It also permitted Indian banks to act as ECB lenders subject to norms. It made the proposal to cap the minimum maturity of ECB up to USD 50 million at 3 years and 5 years for amount exceeding USD 50 million. The minimum average maturity for long term ECB should be 10 years. With regard to all inclusive cost, it said, interest rate for normal ECB should be 50 basis points less than the existing rate which LIBOR plus 350 basis point. Revised guidelines suggest that ECB funds can be used for repayment of trade credit for up to 3 years.
