Under the liberalized External Commercial Borrowings Guidelines, Indian corporates may avail external commercial borrowings (ECB) of up to $250 million, with an average maturity of more than 10 years, with the requisite government approval during a financial year. This is in addition to the existing ECB limit of $500 million under the automatic route (that is, without government approval), with an average maturity of five years.
However, prepayment and call/put options are not permitted for ECBs for up to 10 years.
On December 4 2006, the Reserve Bank of India (RBI) extended the limit on prepayment of ECBs without prior approval from $200 million to $300 million, subject to compliance with the minimum average maturity period, as applicable to the loan.
To provide greater flexibility to corporates in managing their liquidity and interest costs, the RBI, on April 30 2007, further enhanced the existing limit for prepayment of ECBs. Accordingly, prepayment of ECBs is now permitted up to $400 million without prior approval of the RBI, subject to compliance with the minimum average maturity period, as applicable to the loan.
This increase in the limit of prepayment for ECBs enables greater outbound capital flows and investments, which bodes well for corporate India's foreign aspirations. Prepayment of ECBs provides corporates with flexibility between foreign and domestic borrowings.