Sunday, December 13, 2015

Foreign borrowing norms relaxed

For rupee denominated ECB, the rate will be commensurate with the prevailing market conditions. The penal interest for default or breach of covenants is capped at two per cent over and above the contracted rate of interest
For ECB with a minimum three-to-five-year average maturity, the all in cost ceiling is 300 basis points over the six month London interbank offer rate (Libor), or applicable benchmark for the respective currency The ECB with an average maturity of over five years will carry a ceiling of 450bps over the six –month Libor.
Apart from usual lenders like banks such rupee resources can now be borrowed from sovereign wealth funds, pension funds and insurance companies according to the final guidelines. The liberal approach with fewer restrictions on end uses and higher all in cost ceiling will help for long term foreign currency borrowings as the extended term makes repayments more sustainable and minimises roll over for the borrower.
More Liberal Norms
In Focus: RBI allows more liberal norms for external commercial borrowing effective from 1 April
Hit Abroad: Rupee denominated bonds (Masala Bonds) which are already which are already being issued in large numbers, are a huge hit with Japanese retail investors.

Effect on Currency: As more such bonds are issued, rupee will become more international and strong.

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