RBI relaxes ECB norms for infra companies

• The Reserve Bank has liberalised the norms governing foreign borrowings for infrastructure creation “in consultation with the Government”.

• The minimum average maturity requirement for ECBs (external commercial borrowings) in the infrastructure space raised by eligible borrowers has been reduced to three years from earlier five years.

Key highlights

• The average maturity requirement for mandatory hedging has been reduced to five years from earlier ten years, the central bank announced.

• The provisions have been reviewed and decisions taken “in consultation with the Government of India,” it added.

• The move comes amid concerns surrounding the availability of funds following a liquidity squeeze and the difficulties being faced by non-bank lenders, especially those facing asset liability issues due to heavy reliance on short term funding for long term assets.

• This, along with defaults by infra lender IL&FS, has hurt the credit markets.

• The Government has been unequivocal in suggesting remedial measures which will address the needs of the economy.

• Some measures reportedly suggested by the Government include a special window for NBFCs, and the RBI does not seem to be amenable for undertaking the measures.

• The relaxations in the ECB norms follow other moves by the RBI, including last week’s permission to banks to use credit enhancement to help NBFCs raise medium to long term funds.


Mains Paper 3: Economy | Effects of liberalization on the economy

Prelims level: ECBs, Hedging

Mains level: Factors affecting India’s BoP

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