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| The Centre is expected to issue a detailed guideline under the External Commercial Borrowing (ECB) policy on what constitutes a recognised source of funding for domestic companies when they scout for foreign loans. |
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| The issue has become sensitive as the Centre is keen to ensure that hot money from abroad does not come in under the garb of ECB route. |
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| The ECB guidelines make it clear that companies can raise loans from recognised sources only. But the policy as of now does not make it very clear how to differentiate between a recognised and non recognised source. |
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| As an example of what constitutes internationally recognised financing bodies it only says these include banks, export credit agencies, suppliers of equipments, foreign collaborators, foreign equity holders and international capital markets. |
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| But this still leaves a lot of scope for sourcing of funds from dubious entities. |
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| Because of the confusion, the Centre and Reserve Bank of India have had problems in turning down applications on the issue of source of funds, which will now be sorted out. |
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| The Centre is also expected to undertake a review of the almost blanket ban on raising of ECBs of over $ 50 million it has imposed for some time. |
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| To ensure that the corporates tap the domestic market before looking abroad, the Centre is planning to lay out the conditions a company must satisfy before it makes an application for an ECB. |
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| This will also reduce the pressure on the Centre from companies, to allow them to venture abroad to take advantage of the difference between domestic interest rates and those in other markets. |
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| However there are no plans to impose any additional margin requirements beyond the current requirements. Presently companies are allowed to source only 35 per cent of their overall debt requirement for a project through this route. |
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| Further, under the steel and textile restructuring packages approved by the government, companies have been permiited to raise soft loans abroad. |
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| The finance ministry feels that while the ECB window will have to be opened a bit more to accomodate requests made under those packages, companies from other sectors can raise a furore that they have been denied the benefit. |
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| Accordingly it feels that it makes sense to issue a clarification at this juncture, to dilute the charges made by some sections of corporate India that it has not been consistent in refusing permission to raise ECBs. |
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| TIGHTER VIGIL |
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| Recognised lenders to be specified Applications to be screened for source of funds Local credit must be tapped first |
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