Mumbai: The central bank has proposed a sweeping liberalization of the external commercial borrowing framework, removing cost caps, widening eligibility, and tying fundraising limits to financial strength to make it easier for Indian firms to access foreign funds.
Under the Reserve Bank of India’s (RBI’s) new proposals, companies would be allowed to raise funds through ECBs up to $1 billion in a financial year or up to 300% of their net worth, whichever is higher, substantially more than the current ceiling of $750 million.
“The proposed ECB shall be taken into consideration while checking compliance with the borrowing limit,” RBI‘s draft guidelines released on Friday said.
The shift from a fixed monetary cap to a lever tied to net worth is designed to better align borrowing capacity with actual balance‐sheet strength.
Cost cap lifted
A key change is the elimination of cost caps on ECBs. Previously, RBI mandated a maximum spread of 450 basis points over the benchmark for foreign-currency ECBs, and similarly over government securities yield for rupee-denominated ECBs.
Under the proposed regime, interest rates and spreads would be based on market-determined levels, giving borrowers and lenders greater flexibility.
The changes are a positive development for Indian companies looking to raise funds overseas, especially at a time when rates have been slightly cheaper overseas, including hedging costs for certain players. So far in the current financial year up to July, Indian companies have raised a total of $12.44 billion through ECBs compared with $14.68 billion a year earlier.
Governor Sanjay Malhotra had said during Wednesday’s monetary policy announcement that the RBI would make certain changes to ECB rules.
Another important proposed change is in the maturity and end-use rules of ECBs. The central bank has proposed shortening the minimum maturity requirement for most sectors to a floor of three years. But for manufacturing companies, maturity between one and three years may be allowed.
RBI also wants to permit wider usage of ECB proceeds so that they can be invested abroad. For example, in deposits, certificates of deposit, or high-quality treasury bills of up to one year maturity or used in foreign branches or subsidiaries of Indian banks.
Additionally, RBI is also expanding the eligible borrower and lender base. Even companies undergoing restructuring or investigations could raise funds through ECBs, a departure from the previous norms that excluded such entities.
Eligibility expanded
Eligibility would no longer be limited only to entities allowed to receive foreign direct investment, and reporting and compliance requirements will also be simplified to lighten the burden on corporates, RBI’s statement said.
The draft norms also propose that the ECB currency may be changed to another foreign currency, and even the Indian rupee and vice versa.
“Change of currency shall be at the exchange rate prevailing on the date of the agreement for such change or at an exchange rate which results in a liability lower than that arrived at by using the exchange rate prevailing on the date of the agreement,” the central bank said.
If adopted, these changes could unlock significant capital for Indian firms seeking foreign financing, including more flexibility in borrowing terms, interest costs, and fund deployment. Major ECB borrowers this year included Reliance Industries Ltd, Oil India Ltd, the Indian Renewable Energy Development Agency, and even microlender Credit AccessGrameen Ltd.
The final version of the new ECB framework will depend on feedback from stakeholders, which has to be submitted via email by October 25. The proposal marks a decisive shift from rigid ceilings toward a more market-oriented regulatory regime for corporates aiming to raise funds externally.
#RBI #proposes #sweeping #reforms #ease #India #Inc.s #foreign #borrowing
