India: Liberalization of Forex Flows – Relaxations in External Commercial Borrowings

published on 21 July 2022 | reading time approx. 2 minutes

Due to the global outlook being clouded by recession risks, volatile financial markets, sell-offs of risk assets and large spillovers, including flights to safety and safe haven demand for the United States Dollar (USD) and onset of the various external shocks around the world, including the on-going Covid-19 pandemic, certain economies have been facing persistent downward pressures on their currencies.

To alleviate the Indian Rupee (INR) against such downward pressure, the Reserve Bank of India (RBI) has decided to undertake various temporary measures to enhance foreign investments and liberalization of foreign exchange flows into India while ensuring financial stability. These include regulatory relaxations, permission of increased overseas investment in Indian debt and higher threshold for External Commercial Borrowings.

Under the extant External Commercial Borrowings (ECB) regulations, a company is permitted to raise commercial loans from the eligible lenders up to USD 750 million or equivalent per financial year without the approval of RBI.

Subsequent to the relaxations, the RBI has temporarily raised the limit for raising funds without the approval of RBI to USD 1.5 billion per financial year, subject to the conformity with the existing norms of the ECB guidelines.

Further, the all-in-cost ceiling per annum has been increased by 100 basis points, subject to the borrower being of investment grade rating.

All-in-Cost ceiling is the maximum cost that the borrower is allowed to incur on the ECB and includes rate on interest, other fees, expenses, charges etc. but does not include commitment fee, pre-payment charges, withholding tax payable in INR. This is generally prescribed by RBI through a spread of certain basis points over last 6 months' applicable Benchmark Rate; i.e. any widely accepted interbank rate, applicable to the currency of borrowing.

These relaxations in norms would apply till 31 December 2022.