Indian companies are not permitted to raise External Commercial Borrowings: RBI

Reserve Bank of India (RBI) on 9 May 2014 barred Indian companies from raising the External Commercial Borrowings (ECB) from overseas branches and subsidiaries of Indian banks for refinance or repayment of the Rupee loans raised from domestic banking system. The notification of the central bank for changes in the ECB policy comes into force with immediate effect.

As per RBIs notification, the restrictions are applicable in cases like take-out financing, infrastructure financing and spectrum allocation and other repayments. The direction of RBI was issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999).

The ECB loans are much cheaper than the domestic loans and that’s why some companies use the arbitrage available to their advantage.

Earlier in April 2014, the RBI also restricted the banks from issuing guarantees to offshore joint ventures and subsidiaries of Indian companies to avail foreign currency loans to repay rupee credit.