The new draft proposals, issued late Friday night, mark a decisive shift from rigid ceilings toward a more market-oriented regulatory regime for corporates aiming to raise funds externally.
Through the new norms the monetary authority plans to increase the ECB limits and widen its access to raise money at cheaper rates from overseas. The RBI also wants to permit wider usage of ECB proceeds so that they can be invested abroad.
The shift from a fixed monetary cap to a lever tied to networth is designed to better align the borrowing capacity with actual balance‐sheet strength.
The new proposals, issued late last night, seeks to allow companies to raise funds through ECBs up to $1 billion in a financial year or up to 300 percent of their networth, whichever is higher, substantially more than the current ceiling of $750 million.
“The proposed ECB framework shall be taken into consideration while checking compliance with the borrowing limit,” said the draft guidelines.
A key change being sought to introduce is the elimination of cost caps on ECBs. Previously, the RBI mandated a maximum spread of 450 bps over the benchmark for foreign-currency for ECBs, and similarly over government securities yield for rupee-denominated ECBs. Under the proposed regime, interest rates and spreads will be based on market-determined levels, giving borrowers and lenders greater flexibility.
The changes are a positive development for domestic firms looking to raise funds overseas, especially at a time when rates have been slightly cheaper overseas, including hedging costs for certain players. Up to July, domestic issues have raised $12.44 billion through ECBs, marginally down from $14.68 billion in the year-ago period.
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.
The RBI also wants to permit wider use 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 domestic banks.
Additionally, the regulator 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 for tapping the ECM markets will 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, the RBI said.
The draft norms also propose that the ECB currency may be changed to another foreign currency, and even the 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 can unlock significant capital for domestic firms seeking foreign financing, including more flexibility in borrowing terms, interest costs, and fund deployment.
Major ECB borrowers this year included Reliance Industries, Oil India, the Indian Renewable Energy Development Agency, and even microlender Credit Access Grameen.
The final version of the new ECB framework will depend on feedback from stakeholders, which has to be submitted via email by October 25.