RBI allows SEZ developers to raise overseas loans

RBI allows SEZ developers to raise overseas loans
The Financial Express, July 1, 2009, Page 2

fe Bureau, New Delhi

The Reserve Bank of India (RBI) on Tuesday, allowed special economic zone (SEZ) developers to raise overseas loans. Notifying the relaxation in the external commercial borrowings (ECB) policy, it has also eased the borrowing rules for non-banking financial companies (NBFCs) and extended the permission to integrated township developers to access the ECB window till December 2009.

"It has now been decided to allow SEZ developers also to avail of ECB under the approval route for providing infrastructure facilities, as defined in the ECB policy, within the SEZ. However, ECB shall not be permissible for development of integrated township and commercial real estate within the SEZ," RBI said in a notification. This move will now allow SEZ developers to raise funds at a cheaper rate.

RBI has also specified that corporates, which have violated the ECB policy and are under investigation by RBI and the directorate of enforcement, will not be allowed to access the automatic route for ECB. FE had first reported about RBI granting permission to”SEZs raise overseas loans", in its edition dated June 9, 2009. Currently, RBI allows NBFCs exclusively engaged in infrastructure financing to raise ECBs from multilateral, regional financial institutions and government-owned development financial institutions. However, this was subjected to a restrictive condition that the direct lending portfolio of these lenders vis-à-vis their total ECB lending to NBFCs, at any point of time, should not be less than 3:1. ratio of 3:1.

The RBI has now dispensed with this condition with effect from 1 July, 2009. The NBFC borrowing proposals will, however, continue to be examined by the RBI under the approval route, as hitherto.”The modifications to the ECB guidelines will come into force with immediate effect. All other aspects of the ECB policy, such as $500 million limit per company per financial year under the automatic route, eligible borrower, recognised lender, end-use, all-in-cost ceiling, average maturity period, prepayment, refinancing of existing ECB and reporting arrangements remain unchanged," the RBI noted.