Allows overseas branches or the subsidiaries of Indian banks to refinance external commercial borrowings of AAA-rated corporates
Reserve Bank of India (RBI) has allowed the overseas branches of Indian banks or their wholly-owned subsidiaries to refinance the external commercial borrowings (ECBs) of the Indian companies.
Until now, the banks were only allowed to fund ECBs at the time these instruments were contracted or when the company was in a nascent stage or fledgling organisations where the cash flows were not steady and the foreign lenders did not want to take a risk to lend to such entities.
In order to provide a level-playing field, it has been decided in consultation with the government to permit the overseas branches or the subsidiaries of Indian banks to refinance ECBs of AAA-rated corporates as well as Navratna and Maharatna PSUs (public sector undertakings), by raising fresh ECBs, said RBI deputy governor B P Kanungo at the RBI policy review press meet.
Rajnish Kumar, chairman of SBI, said, "The decision in allowing subsidiaries of Indian banks abroad to refinance AAA-rated corporates will provide a fair and just opportunity to Indian banks to book and retain good quality assets."
The ECBs are generally contracted for five to seven years. After the initial period, if the all-in-cost borrowing of the company comes down, then the firm is allowed to refinance the debt to make it cheaper. But Indian banks were not allowed to refinance it. Under the changed regulations, the Indian borrowers will be able to get their ECBs refinanced by Indian lenders.
State Bank of India, Axis Bank, ICICI Bank, Punjab National Bank and Bank of Baroda who have large overseas operations will be positively impacted.
Kanungo said the revised guidelines would be issued within a week. This is a major change in RBI's regulations on ECBs, which will give the domestic banks a level playing ground, Kanungo said.
Venkat Nageshwar, deputy managing director - global markets, SBI, said, "On the ECB refinance, it will help slightly to increase our overseas book as we can participate in ECBs that get refinanced in respect of those companies mentioned in the policy."
According to the latest RBI data on ECBs in October, borrowing by Indian companies from foreign sources more than doubled over the previous year to $4.4 billion. The funds raised by Indian companies through external means stood at $1.77 billion in October 2016.
Among major applicants for raising ECBs through the approval route include Reliance Jio Infocomm Ltd, which applied to raise $1.5 billion for refinancing its loans and Reliance Industries Ltd (RIL) which has applied to raise $991.27 million to refinance an earlier ECB. Hindustan Petroleum Corporation put in an application to raise $200 million and GTL Infrastructure wanted to raise $197.24 million to meet the FCCB redemption. Now under the revised regulations of RBI, all these refinance opportunities can be funded by domestic banks.
Instruments like ECBs, foreign currency convertible bonds (FCCBs) and rupee-denominated bonds (RDBs) are used by domestic companies to borrow the money.
MORE ROOM
- State Bank of India, Axis Bank , ICICI Bank, Punjab National Bank and Bank of Baroda who have large overseas operations will be positively impacted
- The revised guidelines would be issued within a week. Borrowing by Indian companies from foreign sources has more than doubled over the previous year to $4.4 billion
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