The Govt. of India has relaxed norms for External Commerical Borrowings (ECBs) for infrastructure projects. The companies engaged in building ports, airports, roads, bridges, power and telecom which could borrow only upto $100 million a year for rupee spending in For ECBs of three to seven years tenure, the borrowing rate has been left unchanged at 200 to 350 bps plus LIBOR. For borrowings between five-seven years, the all-in-cost ceiling has also been left unchanged at 350 bps while for those above seven years; the rate has been relaxed from 350 to 450 bps above LIBOR.
The news indicates that the Govt is going ahead with a good focus on reforms. Maybe in the current situation, where even companies with a strong balance sheet might find it difficult to get funding, for the long term, this is a positive move. The relaxation of the ECB norm, as experts say, might help bring down the dollar vis-à-vis the rupee. But probably, another way to look at it is that Govt is seeing the rupee at stronger levels in the months to come. So maybe right now, this news may not make much sense given the volatile rupee and dollar tussle. This, run up on the dollar, many say, is an aberration and once things settle down a bit, the rupee would also stabilize at better rates. So once that happens, this ECB relaxation will make a lot of sense.
Interest rates on the overseas markets would come at a much cheaper rate for large borrowings and for such long tenures would make more sense to borrow abroad than to borrow in
The growth of
The realty sector does not qualify for this increased ECB limit. The ECB ceiling for companies other than infrastructure companies stays unchanged at the previous $50 million. And taking a lesson or two from US, the Govt would not be in a hurry to relax this limit for realty companies any time soon.
This relaxation of the ECBs limit for infra is a step in the right direction but it will take some time to get to the desired destination.