In order to encourage overseas funding, RBI has proposed to allow domestic companies to borrow money from pension funds, sovereign wealth funds (SWFs) and insurance funds as part of the ECBs. The modifications in the External Commercial Borrowing (ECB) guidelines are aimed at replacing the ECB policy with a more rational and liberal framework.
The basic thrust of the revised framework is to retain more qualitative parameters for the normal (foreign currency-denominated) ECB and to provide more liberal dispensation for long-term borrowings in foreign currency. The RBI proposed to expand the list of recognised ECB lenders by including overseas regulated financial entities, pension funds, insurance funds, sovereign wealth funds and similar other long-term investors. It also allowed Indian banks to act as ECB lenders subject to norms.
As per the proposed guidelines, ECB funds can also be used to repay trade credit up to 3 years, payment towards capital goods already imported, purchase of secondhand domestic capital goods, plant machinery, on-lending to infrastructure Special Purpose Vehicle and Overseas Direct Investment in JVs.
The basic objective of the ECB policy is to supplement domestic capital for creation of capital assets in the country, limited by considerations for capital account management.
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