On Tuesday, RBI has liberalized the end use of funds by relaxing the restrictions related to external commercial borrowings (ECBs) both for Corporate as well as and non-banking finance companies (NBFCs).
ECBs are commercial loans raised by eligible resident entities from recognized lenders, except foreign branches/overseas subsidiaries of Indian banks.
Revised ECB policy will help NBFCs for long term overseas borrowings.
Corporate and NBFCs were facing challenges of liquidity shortage because of the perception of credit risk, “They are getting capital but at a very high cost”
To liberalize the ECB framework it has been decided to allow the use of funds for working capital requirements, general corporate purposes and repayment of rupee loans.
RBI said that ECBs with a minimum average maturity period of 10 years can now be used for working capital purposes and general corporate purposes.
Further, RBI will also allow corporate and NBFCs to use proceeds from ECBs with a minimum average maturity period of 7 years for repayment of rupee loans raised domestically for capital expenditure.
And for repayment of rupee loans raised domestically for purposes other than capital expenditure and for on-lending by NBFCs for the same, the minimum average maturity period of the ECB would have to be 10 years.
Corporate borrowers, who are engaged into manufacturing or infrastructure building and classified as Special Mention Account, SMA-2 (where principal or interest payment is overdue between 61-90 days) or Non-Performing Asset will be able to avail of ECBs to repay rupee loans taken for Capital expenditures under any one-time settlement arrangement with lenders.
Lender banks are also permitted to sell, through assignment, such loans to eligible ECB lenders after complying with ECB framework.
However, such permission to sell is not granted to foreign branches/ overseas subsidiaries of Indian banks.
These revised measures are likely being a relief and remedy for corporate and NBFC to beat liquidity crises.