Infra firms seek reversal of ECB norms

Infrastructure companies have asked the Reserve Bank of India (RBI) to reverse the new external commercial borrowings (ECBs) guidelines released last month, so that they can raise short-term foreign currency loans instead of being restricted to raise loans of average maturity of 10 years. Through the new guidelines, RBI widened the ambit of the financiers, but made it mandatory for infra companies to raise long-term foreign loans while permitting the shorter-term foreign loans for manufacturing companies only.

An official at an infrastructure company said, "We have represented our case to the RBI. There is no 10-year money in the market. Unless we are allowed to raise shorter duration loans it will be impossible to raise foreign loans to stay competitive."

While the domestic banks in India can give rupee loans, the overseas branches of Indian banks can give ECBs to manufaturing companies. To prevent the problem of unhedged exposures, RBI put the onus of the currency risk on the lender.The foreign currency risk on the foreign loans also be with the foreign lenders, be it a bank, a fund or an insurance company.

The amount of ECBs that Indian companies raise will come down dramatically as manufacturing companies are the only ones allowed to raise short-term foreign loans and overseas branches or subsidiaries of Indian banks can only lend to them.

In October, the RBI received requests to raise $2.11 billion worth of ECBs, chunk of this was Reliance Industries for raising $1.44 billion for the import of capital goods with a maturity of 12 years and three months. In September, the RBI received requests for $2.6 billion worth of ECBs, chunk of which was a request from Reliance Industries to refinance an earlier ECB for three years and seven months. This pipeline, bankers say, will come down under the new ECB provisions.

A senior Indian banker said, "There is no 10-year money in the market and the bankers do not take a view on the currency. So where is the issue of taking the currency risk. Companies are unable to raise money."

ECBs raised by Indian companies are expected to come down drastically as at least two big companies spoken to for this story say that it may not be able to raise long-term money as Indian lenders are also not allowed to participate. Bankers also agreed that the ECB pipeline from Indian companies will come down.

A foreign lender said, "We do not generally take long-term exposures and the loans are generally written down.We also do not take a view on the currency while lending."

Companies in manufacturing, software development sectors, shipping and airline companies, Sidbi, units in special economic zones and the Export Import Bank of India are the only entities to which Indian banks can lend.

Only multilateral agencies, export credit agencies, suppliers of equipment, foreign equity holders, pension funds, insurance companies, sovereign wealth funds can lend to infrastructure companies.