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Eased norms for costs, maturity, and eligibility
The central bank also proposed to raise funds at a market determined interest rates and removed the cost caps. According to previous norms, there was a spread of 450 basis points (bps) over the applicable benchmark for ECBs raised in foreign currency. The maximum spread for ECBs raised in domestic currency was 450 bps over the prevailing yield of the government securities. RBI also simplified the end-use restrictions and minimum average maturity requirements. The borrowers can raise ECBs with a minimum maturity of three years. In the case of the manufacturing companies, the maturity can range from one year to three years. With the new proposed norms, the proceeds of the ECBs can be utilised outside India in deposit, certificate of deposit or other similar product offered by a bank, which has a highest quality rating. The proceeds can be also invested in high quality treasury bills with maturity up to one-year or in a deposit with a foreign branch or foreign subsidiary of a bank in India.
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The regulator expanded the borrower and lender base eligible for ECB transactions, which provide opportunities for smooth credit flow. The RBI proposed permitting any entity, including firms under restructuring or investigation to raise funds through ECBs. Earlier, entities eligible to receive foreign direct investment were only allowed to raise fund through ECBs. RBI also simplified reporting requirements to ease compliance obligations.