MUMBAI: The Reserve Bank of India's ( RBI) proposed relaxation on foreign currency borrowing is expected to boost the prospects of well rated non-bank finance companies that are currently heavily dependent on banks and the bond market to raise resources, analysts said. The earlier borrowing cap, lifted Friday, was $750 million.
The RBI, in its proposed guidelines on overseas borrowings, has removed the limit on foreign currency loans a regulated NBFC is allowed to garner.
Relaxation in external commercial borrowing (ECB) norms is among the 22 measures announced by Governor Sanjay Malhotra in the October 1 monetary policy.
In FY25, non-bank lenders raised $21.6 billion from the ECB market, showed RBI data.
Corporate borrowings revised
This apart, the RBI has proposed a revised ceiling for overseas borrowing by corporates to $1 billion, or 300% of their net worth, the draft guidelines published Friday showed. Earlier, it was capped at $750 million.
Financial regulators - the Reserve Bank of India, Securities and Exchange Board of India, Insurance Regulatory and Development Authority of India and Pension Fund Regulatory and Development Authority -would not enforce ceilings on the amounts that can be borrowed by Indian companies from overseas markets.
The RBI has also allowed borrowers that is under a debt restructuring scheme or corporate insolvency resolution process to raise ECB only if specifically permitted under the restructuring or resolution plan.
The RBI also proposed to remove pre-set spreads on foreign currency borrowing. The borrowing rate is now proposed to be market determined. For loans maturing earlier than three years, the cost of borrowing would be linked to the trade credit ceiling.
Specific End-Use Curbs
While the RBI has removed end-use restrictions, curbs on activities such as real estate acquisition (except industrial land), chit funds, and speculative trading continue. On-lending is permitted only under regulated structures or within group entities.
The draft also proposes more flexibility in repayment of loans by stating that average maturity could be three years and relaxed repayments for 1-3 years, which were tightly regulated earlier. However, a call and put option cannot be exercised before three years of average maturity.
The RBI has permitted conversion of ECB into non debt instruments such as equity.
The draft also proposed allowing refinancing if maturity conditions are met and new credit spreads are less than or equal to the original.
ECBs will have a minimum average maturity period (MAMP) of three years, except for the manufacturing sector.
"An eligible borrower engaged in the manufacturing sector may raise ECB with an average maturity period between one and three years, subject to the condition that outstanding stock of such ECBs does not exceed $50 million," the draft said.
The RBI, in its proposed guidelines on overseas borrowings, has removed the limit on foreign currency loans a regulated NBFC is allowed to garner.
Relaxation in external commercial borrowing (ECB) norms is among the 22 measures announced by Governor Sanjay Malhotra in the October 1 monetary policy.
In FY25, non-bank lenders raised $21.6 billion from the ECB market, showed RBI data.
Corporate borrowings revised
This apart, the RBI has proposed a revised ceiling for overseas borrowing by corporates to $1 billion, or 300% of their net worth, the draft guidelines published Friday showed. Earlier, it was capped at $750 million.
Financial regulators - the Reserve Bank of India, Securities and Exchange Board of India, Insurance Regulatory and Development Authority of India and Pension Fund Regulatory and Development Authority -would not enforce ceilings on the amounts that can be borrowed by Indian companies from overseas markets.
The RBI has also allowed borrowers that is under a debt restructuring scheme or corporate insolvency resolution process to raise ECB only if specifically permitted under the restructuring or resolution plan.
The RBI also proposed to remove pre-set spreads on foreign currency borrowing. The borrowing rate is now proposed to be market determined. For loans maturing earlier than three years, the cost of borrowing would be linked to the trade credit ceiling.
Specific End-Use Curbs
While the RBI has removed end-use restrictions, curbs on activities such as real estate acquisition (except industrial land), chit funds, and speculative trading continue. On-lending is permitted only under regulated structures or within group entities.
The draft also proposes more flexibility in repayment of loans by stating that average maturity could be three years and relaxed repayments for 1-3 years, which were tightly regulated earlier. However, a call and put option cannot be exercised before three years of average maturity.
The RBI has permitted conversion of ECB into non debt instruments such as equity.
The draft also proposed allowing refinancing if maturity conditions are met and new credit spreads are less than or equal to the original.
ECBs will have a minimum average maturity period (MAMP) of three years, except for the manufacturing sector.
"An eligible borrower engaged in the manufacturing sector may raise ECB with an average maturity period between one and three years, subject to the condition that outstanding stock of such ECBs does not exceed $50 million," the draft said.
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