No change in ECB policy this quarter

NEW DELHI: The government has dashed the hopes of Indian companies hoping to raise easy money abroad. A meeting of the high-level committee on external commercial borrowings (ECBs) on Tuesday decided to continue for one more quarter with its policy of not encouraging ECBs of $100m or more.
The decision to put the lid on ECB proposals of $100m and above was taken after a review of the policy, according to senior officials.
However, in the first quarter of this year, the finance ministry which has to vet ECB proposals of a size of $100m and above declined to approve such proposals.
The growing capital inflows reflected in the foreign exchange reserves level of over $82bn and the liquidity and soft interest rate prevailing in the local markets have prompted the government not to ease the norms, officials said. However, the Reserve Bank of India will carry out an assessment on the implications of a potential relaxation of norms and report to the ministry after a month, officials said. If the norms were to be relaxed, it would only fuel more inflows, at a time when the government and the RBI would be keen on seeing more outflows.
The government is aware of the fact that corporates have a strong case for being allowed to borrow abroad.
The six-month Libor stands at 1.12% and taking into account the cost of hedging at below 2.5%, the all-in cost of commercial borrowings would work out to less than 5% for good corporates. However, in the current scenario, given the impact the easing on borrowing restrictions have on monetary policy and a couple of other segments, it has been decided that discouraging ECBs for the next three to four months would be the logical course to follow.
Several Indian companies have been keen on raising ECBs given the falling interest rates abroad. However, they will have to wait until the next review.