RBI – Eases ECB Norms for Infrastructure

Continuing with measures taken last week – making NRI deposits more attractive and providing additional liquidity, RBI has stepped in to rescue the Infrastructure companies. The central bank raised the external commercial borrowing (ECB) limit for infrastructure companies to US$500 million per year for rupee expenditure from US$100 million earlier, under the approval route. The relaxed guidelines also noted that the borrowings in excess of US$100 million should have a minimum average maturity of seven years.

The overseas borrowing cap for companies other than those in infrastructure sector for rupee expenditure remains unchanged at US$50 million under the approval route.

The RBI move is likely to have a positive impact. Given the current global market conditions, do not expect a surge in flows. However, the easing of the ECB rules would be rupee positive and supports our view of the unit re-tracing back to Rs43-44 levels by March. As regards growth, new rules are positive for the investment upturn and may help stem the deceleration seen in investment growth.