Reserve Bank of India liberalised the rules governing external commercial borrowing for infrastructure firms in terms of both tenure and the hedging requirements. External commercial borrowing (ECBs) are loans in India made by non-resident lenders in foreign currency to Indian borrowers. They are used widely in India to facilitate access to foreign money by Indian corporations and PSUs (public sector undertakings).
The modified norms states:
- Reduction in minimum tenor for borrowing through the ECB route, from 5 years to 3 years.
- The average maturity requirement for mandatory hedging has been reduced to 5 years from earlier 10 years.
These changes will facilitate infra companies to raise resources overseas. The ECBs with minimum average maturity period of 3 to 5 years in the infrastructure space will have to meet 100% mandatory hedging requirement.
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.