Banks, FIs may be allowed to borrow abroad

ECB policy review for core sector funds.

The Reserve Bank of India (RBI) has initiated a review of its policy relating to external commercial borrowings (ECBs), amid calls for allowing financial intermediaries to raise debt abroad.

Companies have also requested the central bank to lift the ban on banks issuing guarantees on behalf of corporates tapping the ECB market.

RBI sources said a process was under way for a revision in the ECB policy, but declined to spell out the details.

Financial intermediaries were permitted to raise resources through the ECB route till November 14, 2003, but the policy was reversed, citing "potential systemic risks".

ICICI Bank has been the most vocal among the banks that have sought changes in the ECB policy.

Banking sources said the RBI could allow banks to raise long-term funds overseas for the financing of infrastructure projects.

The demand for allowing issue of guarantees is being made as it will help improve the rating of overseas corporate debt issues and thus reduce interest cost by as much as 1 per cent.

In the RBI's current ECB policy, companies can raise up to $20 million with a minimum maturity of three years and up to $500 million with a minimum maturity of five years.

Financial institutions dealing exclusively with infrastructure or export finance are allowed to access the ECB market on a case by case basis.

Banks and financial institutions, which had participated in the textile or steel sector restructuring package, are also permitted to avail themselves of ECBs to the extent of their investment in the restructuring packages.

Drama over dollar flows

India inc wants more

Companies have requested the RBI to lift the ban on banks issuing guarantees on behalf of corporates tapping the ECB market

The RBI could allow banks to raise long-term funds overseas for financing infrastructure projects

Currently, companies can raise up to $500 million with a minimum maturity of 5 yrs

But hold your horses, says RBI

According to North Block officials, the RBI believes the committee on foreign institutional investment under Ashok Lahiri was "too liberal"

The government is reviewing whether FII investment should be free-flowing in all sectors

The govt is studying whether FIIs make the economy vulnerable to external shocks