The Reserve Bank of India (RBI) today tightened the guidelines for external commercial borrowings (ECBs) by withdrawing relaxations provided to companies to raise money from overseas debt markets, a move that will contain surge of capital flows.
The central bank in a notification also decided to discontinue with the facility for buyback of foreign currency convertible bonds (FCCBs) by Indian companies with effect from January 1, 2010.
However, to encourage telecom companies to participate in spectrum auction, it allowed them to use ECB funds for buying airwaves.
RBI said it was modifying the ECB guidelines in view of the global developments and the prevailing macroeconomic conditions.
The RBI said, with effect from January 1, the all-inclusive ceiling for ECBs under the approval route will be 300 basis points above Libor for loans ranging from three to five years.
The all-inclusive ceiling--the spread which companies can pay to raise funds--would be 500 basis points for loans with a maturity of more than five years.
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With regard to telecom sector, the RBI had earlier decided that telcos can utilise the ECB proceeds to pay for the 3G spectrum licence.
The central bank has now decided that telecom companies can use the ECB route to pay towards the allocation of the radiowaves, the auction for which is scheduled to begin on January 14. The modification will apply with immediate effect, the central bank said.
The RBI has also extended the guidelines for raising overseas funds for developing integrated townships by one year up to December 31, 2010.
With regard to the facility of buyback of FCCBs, the RBI said, "Keeping in view the prevailing macroeconomic conditions and global developments, especially the improvements in the stock prices, it has been decided to discontinue the facility with effect from January 1, 2010."
RBI has also decided to allow NBFCs exclusively involved in financing the infrastructure projects to avail of ECBs from the recognised lender category including international banks under the approval route, with immediate effect.
Foreign institutional investors had pumped over Rs 73,000 crore into the domestic equities market till mid-November.