RBI reduces maturity of overseas borrowings of up to $50 mn by manufacturers to 1 year

Borrowers in the manufacturing sector can now raise overseas borrowings of up to $50 million with a minimum average maturity of one year, said the Reserve Bank of India (RBI).

Prior to this announcement, the tenure was a minimum average maturity period of 3 years.

“It has been decided to allow eligible ECB borrowers who are into manufacturing sector to raise ECB up to $50 million or its equivalent with a minimum average maturity period of 1 year,” RBI said in a notification on its website.

The decision to reduce the tenure was taken to arrest the impact of a depreciating rupee as most manufacturing companies are buying dollars due to lack of financing options from banks and other financial institutions.

The one-year maturity reduces the borrowing costs as compared to the three-year maturity, which also saves on the interest payment for three years at a higher rate.

Now, companies can raise shorter period money and roll it over and use the cheaper funds to retire high-cost ECBs.

This has been done in consultation with the government, to liberalise some aspects of the ECB policy including policy on rupee-denominated bonds (RDB), the banking regulator said.

Over the last weekend, a high-level committee chaired by Prime Minister Narendra Modi proposed five-pronged measures including this to increase dollar inflows and reduce the reduce the current account deficit (CAD).

Additionally, RBI also decided to permit Indian banks to participate as arrangers/underwriters/market makers/traders in RDB issued overseas subject to applicable prudential norms.

Currently, Indian banks can act as arranger and underwriter for RDBs issued overseas and in case of underwriting an issue, their holding cannot be more than 5 percent of the issue size after 6 months of issue.