State co-op bodies can now raise ECBs

The Reserve Bank of India (RBI) has decided to allow multi-state co-operative societies engaged in manufacturing activity to raise external commercial borrowings (ECBs).

Entities such as National Dairy Development Board and Khadi Gram Vikas kendras are some examples of multi-state co-operative societies.

The central bank in its notification stated that it would consider the proposals from these societies under the approval route, provided that the co-operative society is financially solvent.

Secondly, the RBI has made it mandatory for these applicants to submit their latest audited balance sheet.

It is also imperative that the proposal complies with all other parameters of external commercial borrowings guidelines. These include norms related to the recognised lender, permitted end-use, average maturity period, all-in-cost ceiling, said the RBI.

The decision has been made, keeping in view recent developments and representations received from various organisations.

In August 2005, the RBI had taken a review of the external commercial borrowings guidelines and accordingly decided to liberalise the ECB policy.

This modification gave non-banking financial companies (NBFCs) from multilateral financial institutions, reputable regional financial institutions, official export credit agencies and international banks to raise ECBs with a minimum average maturity of five years to finance import of infrastructure equipment for leasing to infrastructure projects.

It also allowed for housing finance companies to tap the foreign currency convertible bonds (FCCB) route based on few conditions.

Under this notification, the central bank clarified the minimum holding of equity by the foreign entity in the borrower's company and allowed for authorised dealers to make prepayment of ECB up to $200 million without its prior approval.