16 August 2022
RBI introduced Liberalization Measures for External Commercial Borrowings
 
The Reserve Bank of India (RBI) released a notification dated 29 July 2022 (Notification) regarding Foreign Exchange Management (Borrowing and Lending) (Amendment) Regulations, 2022. The said Notification amended the External Commercial Borrowing (ECB) limit with an intent to liberalize foreign exchange inflows.

In line with the aforesaid Notification, the RBI issued Circular No. 11, RBI/2022-2023/98 dated 1 August 2022 making changes to the Master Directions No. 5 on External Commercial Borrowings, Trade Credits, and Structured Obligations, dated 26 March 2019 (as amended from time to time) (Master Directions).

The circular has become effective from the date of its issuance and shall be available for External Commercial Borrowings (ECBs) to be raised until 31 December 2022.

The changes brought under the Notification and Master Directions are summarized below:

Increase in ECB limit
  • The limit to raise ECB under automatic route stands increased from USD 750 million or equivalent to USD 1.5 billion or equivalent.
Increase in all-in-cost ceiling*
  • All-in-cost ceiling has been temporarily increased by 100 bps for ECBs and in the case of new ECBs, it is increased to 600 bps.
  • However, the enhanced all-in-cost ceiling shall be available only to eligible borrowers of investment grade rating from Indian Credit Rating Agencies (CRAs).
  • Other eligible borrowers may raise ECBs within the existing all-in-cost ceiling which is 500 bps for new ECBs denominated in foreign currency and 450 bps for ECBs denominated in INR.

*It includes the rate of interest, other fees, expenses, charges, guarantee fees, and ECA charges, whether paid in foreign currency or INR but will not include commitment fees and withholding tax payable in INR.
Our Comments
The RBI in its Press Release dated 6 July 2022, inter alia, has stated that to diversify further and expand the sources of forex funding to mitigate volatility and dampen global spillovers, it has undertaken certain measures while ensuring overall macroeconomic and financial stability.

The liberalized ECB framework would enable eligible borrowers to expand the overall limit to access forex funding while an increased all-in-cost ceiling will attract lenders. The liberalization measure would also help alleviate dollar tightness and ensure orderly market functioning.

The circular link is given for your ready reference.
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