Liberalization of External Commercial Borrowing Standards – Financial Services

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The Reserve Bank of India (RBI), on July 6, 2022, issued a press release on the liberalization of foreign exchange flows and announced a series of measures aimed at increasing foreign exchange inflows into India. Following this press release, the RBI issued a circular (AP (Series DIR) Circular No. 11) on 1 August 2022 (ECB Circular 2022), pursuant to which it made certain temporary amendments to the existing regime on borrowings (ECB) and such regulatory relaxations would be available for ECBs in force until December 31, 2022.

Increase in borrowing limit

Under the existing BCE regime, eligible borrowers could receive BCE up to USD 750 million or the equivalent in one fiscal year, under the automatic route. Through the 2022 ECB circular, the RBI doubled the ECB borrowing limit under the automatic route to $1.5 billion or equivalent, from the previous limit of $750. millions of dollars.

Global Cost Cap Increase

The RBI, as part of the 2022 ECB Circular, has raised the aggregate cost cap for ECBs effective until 31 December 2022. Under the current regulations, the aggregate cost cap for new ECB in foreign currency (FCY) was benchmark +500 basis points and that for ECB denominated in Indian rupee (INR) it was the same at Benchmark +450 basis points. In accordance with the 2022 ECB circular, the ceiling applicable to all eligible borrowers has been raised by 100 basis points, both for ECBs denominated in FCY and for ECBs denominated in INR. This temporary all-inclusive cap increase is subject to eligible borrowers with investment rating qualifications, i.e. any rating of BBB- and above, as provided by Indian credit rating agencies.


Through the above measures, RBI has, amidst the depreciated value of Indian Rupee, attempted to liberalize the regulatory regime relating to ECBs so that it results in improved inflow of foreign currency into the country. It remains to be seen whether such waivers would create an attractive opportunity for foreign market lenders to participate in lending to Indian borrowers. Furthermore, while there has been a liberalization of borrowing limits and all-inclusive cap for eligible borrowers under ECB Circular 2022, it should be noted that the special waivers granted by the RBI to certain categories of borrowers such as oil marketing companies and start-ups continue to apply in accordance with the regulations in force on BCE.

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