Reserve Bank of India eases ECB requirements

The Reserve Bank of India (RBI) on 20 April issued two circulars amending external commercial borrowing (ECB) norms. Circular 112 amends norms relating to the refinancing and rescheduling of ECBs, while circular 111 liberalizes ECB policies for the power sector and for the maintenance and operation of toll systems for roads and highways.

Refinancing and rescheduling

Borrowers are now permitted to refinance and reschedule an existing ECB by raising a new ECB at a higher all-in-cost ceiling than the existing borrowing, under the approval route. This is subject to the condition that the higher all-in-cost does not exceed the all-in-cost ceiling prescribed under existing guidelines.

Higher limit for power sector

Indian companies in the power sector are now allowed to use 40% of new ECBs raised to refinance rupee loans they have obtained from Indian banks, under the approval route. However, at least 60% of the new ECBs proposed to be raised must be used as fresh capital expenditure for infrastructure projects. This rule has been introduced in view of the increasing capital requirements of the power sector. All other terms and conditions relating to the refinancing of rupee loans outlined in circular 25 issued on 23 September 2011 remain unchanged.

The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.