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MUMBAI: Simplification of external commercial borrowing (ECB) guidelines has opened a new window of funding for home finance companies and port operators in India, increasing the prospects of a fresh round of overseas borrowings.
In a notification posted on its website on Friday, the Reserve Bank of India made all-in-cost ceiling for ECBs uniform at 450 basis points over the benchmark London Interbank Offer Rate (LIBOR), doing away with different slabs for different maturities.
Hundred basis points make 1 percentage point.
“The RBI notification simplifies borrowings through ECBs by introducing a flat all-in-cost ceiling, expanding the list of eligible borrowers to housing-finance companies and port trusts as well as simplifying restrictions around end use of ECB funding.
This notification continues to liberalise the ECB framework, recognising that companies require increased flexibility and access to various types of financing, including offshore financing,” said Arun Saigal, head of global finance at Barclays India.
The latest changes come amid an increase in overseas borrowing rates for Indian companies after a rise in the benchmark 10-year US bond in 2018.
Companies in the maintenance, repair and overhaul in the freight forwarding sector have also been allowed to borrow foreign funds through the masala route — rupee denominated bonds issued in overseas markets.
“For housing finance companies, this makes access to foreign funds simpler.
We no longer have to wait for the RBI approval with the caveat that our currency risk is fully hedged,” said V Srinivasa Rangan, executive director at mortgage lender HDFC.
Housing finance companies were allowed to borrow in foreign currency, but only after RBI approval and the central bank had given no fresh approval for the last two years.
“Bringing home finance under the automatic route opens a new route of financing for a sector growing at more than 20 per cent and which is likely to keep growing due to the massive home shortage in the country,” said a senior banker from a UK-based lender.
However, unfavourable market conditions could mean overseas borrowings may not start immediately.
The US benchmark bond has risen above the 3 per cent mark, a four-year high, earlier last week.
The RBI also increased the ECB liability-to-equity ratio for ECB raised from direct foreign equity holder under the automatic route to 7:1.
This means, for every rupee of equity, companies can now borrow seven rupees through ECBs.
