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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