Govt tightens ECB norms with immediate effect

In what is being seen as a move to rein in a rising rupee, the government announced restrictions on external commercial borrowings, or ECBs. It hopes that this will reduce the flow of dollars into the country. 

 

The new norms state that a company can raise up to USD 20 million dollars through the ECB route after getting RBI's approval.

 

But ECBs over USD 20 million can only be spent overseas. This move comes after India has seen unprecedented dollar inflows through ECBs. In the period from April-July, India has received ECBs to the tune of USD 9 billion.

L&T has said that the rupee expenditure on capex will get curbed after the new ECB norms. They added that the new ECB norms are seen as impacting borrowing by 75-100 bps and they are unclear on the impact on the infrastructure sector.

Mahindra & Mahindra has said that the cost of funds may now be slightly higher than borrowing in dollars on a fully hedged basis. The cost of borrowing would depend on rating of the borrower, the company added.

 

Tata Motors said that the guidelines may result in borrowing cost for industry at large to increase to some extent. It will certainly help industry, if these guidelines are a short-term measure, it added.

Bankers have commented that the dollar may jump to Rs 40.75-41.00 tomorrow.