Indian borrowing

Author: | Published: 1 Oct 2007

On August 7 2007, the Reserve Bank of India (RBI) announced changes to its external commercial borrowings (ECB) guidelines. With these latest revisions, the RBI intends to stem the inflow of foreign currency into India that is responsible for accelerating inflation and causing an appreciation of the Indian rupee against other currencies. Many Indian companies have been raising funds through ECBs due to higher domestic lending rates. With the interest rate in the Indian domestic markets in the range of 12% to 13%, many borrowers have opted to raise foreign currency loans through ECBs at the rate of about 6.5%.

The changes may adversely affect both syndicated lending involving India and convertible bonds issued in the country.

The revised guidelines provide that proceeds from ECBs in excess of $20 million will only be allowed for foreign currency expenditure in accordance with permitted end-uses and must be deposited...