RBI suspends external borrowings in Chinese Yuan

Moneycontrol Bureau

The Reserve Bank of India (RBI) on Tuesday discontinued the facility of external commercial borrowings (ECBs) in renminbi, the Chinese currency. Indian companies in the infrastructure sector were allowed to avail this fund raising route subject to a maximum of cap of USD one billion.

"It has been observed that the facility of ECB in renminbi (RMB) had remained unused so far. Accordingly, the scheme of ECB in renminbi has been reviewed and it has been decided that this scheme may be discontinued from the date of issue of this circular," RBI said in a notification on Tuesday.

Also read: RBI eases ECB norms, paves way for low cost home projects

The central bank had introduced this facility on September 27, 2011. It represented business opportunities for Chinese lenders and was supposed to boost bilateral trade between China and India.  Currently, one yuan, the other name of renminbi, is equal to Rs 9.71.

According to Brinda Jagirdar, an independent economist and a former general manager (Economic Research) at the State Bank of India (SBI), there could be political ramifications as well behind this decision as bilateral co-operations may not be growing as expected.

"Moreover, if companies continue to borrow overseas funds, it will add to current account deficit (CAD). At the time of repayments of those offshore loans, it will put pressure on India's exchange rate," she told moneycontrol.com.

"The directions contained in this circular have been issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law," RBI said.

saikat.das@network18online.com