Corps to park ECB raised funds in local banks: RBI

Posted By: Religare
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Corps to park ECB raised funds in local banks: RBI
In a bid to increase the inflow of foreign currency in the current scenario of depreciating rupee against dollar, the Reserve Bank of India (RBI) has asked the corporates to park their funds raised through external commercial borrowing (ECB), with local banks with effect from November 23, 2011.

However, ECBs meant for foreign currency expenditure can be retained abroad pending utilization, added RBI. "The proceeds of the ECB raised abroad for Rupee expenditure in India... should be brought immediately for credit to Rupee accounts with AD Category I banks," said (RBI) in a notification.

The changes in the norm for ECBs come in line with the review of the developments in the global financial markets and current macro-economic conditions. Additionally, the recent fall of rupee, which has become a concern for the policy makers as the slide is affecting capital market and fueling inflation further influenced RBI to ahead with the modifications.

Continuing its downward journey, the rupee fell to an all time low of 52.73 on November 22, 2011.

Funds raised by the corporate to meet their domestic needs could also be used for local sourcing of capital goods, on-lending to Self-Help Groups or for micro credit and payment for spectrum allocation, among other purposes.

As the cost of credit is significantly less in overseas markets, Indian companies have borrowed close to USD 29 billion in foreign currencies, through ECBs and FCCBs, so far in 2011, as against USD 18 billion in 2010.

Meanwhile, the RBI has also enhanced the 'all-in-costs ceiling', which include rate of interest, fees and expenses, for raising funds through ECBs effective from March 31, 2012. Additionally, ceiling with an average maturity period of ECBs between three and five years have been revised upwards to 350 basis points from 300 basis points, however the rate remains same for those with average maturity of above five years.

Dion Global Solutions Ltd

Read more about: rbi, dollar, interest rate
Story first published: Thursday, November 24, 2011, 13:30 [IST]
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