India Inc Could Raise a Cool $100 Billion as RBI Eases ECB Norms
The Reserve Bank of India (RBI) is set to significantly impact the borrowing landscape for Indian companies by easing external commercial borrowings (ECBs). This move positions India Inc to potentially raise up to $100 billion in the financial year 2026-27, a notable increase from the record $61.18 billion achieved in 2024-25. Here’s what you need to know about the changes and their implications.
Key Changes in ECB Regulations
– Increased Borrowing Limits:
– The RBI has raised the per-borrower ceiling from $750 million to $1 billion.
– Eligible companies can now borrow the greater of $1 billion or 300% of their net worth.
– Relaxed End-Use Restrictions:
– Companies can utilize ECB funds for broader purposes, including acquisition financing, refinancing domestic loans, and various corporate expenditures beyond traditional capital needs.
– Pricing Flexibility:
– The RBI has removed the all-in-cost ceiling for ECBs with an average maturity of three years and above. Previously, pricing was capped at 450 basis points over the secured overnight financing rate (SOFR).
Market Impact and Future Prospects
– Potential Doubling of ECB Volumes:
– According to market participants, the changes could lead to a doubling of borrowing volumes from current levels in the coming years, driven by increased interest in structured credit and acquisition-linked financing transitioning to overseas markets.
– Access to Global Liquidity:
– The broadening eligibility criteria and the removal of pricing caps enable greater access to international funds. Utsav Johri, a partner at JSA Advocates & Solicitors, highlights that this enhanced flexibility will significantly boost foreign currency borrowing from India.
Changes in Funding Structures
– Streamlined Processes for Foreign Investments:
– Financing for foreign-owned companies for downstream investments can now be achieved through the ECB route, moving away from previously complex structures.
– Liberalization for Real Estate:
– ECBs are now permitted for construction and development projects in sectors with foreign direct investment (FDI) approval, expanding the scope of funding for developers.
Enhanced Flexibility for Borrowers
– Revised Maturity Period:
– The minimum average maturity has been reduced to three years, making it easier to refinance rupee loans.
– Short-Term Trade Credit Increase:
– The borrowing limit for short-term trade credit has been raised to $150 million from $50 million for maturities of one to three years.
– Specific Restrictions on ECB Proceeds:
– Funds cannot be used for chit funds, Nidhi companies, or general real estate, with certain exceptions for approved development projects.
Conclusion
The RBI’s easing of ECB norms presents a compelling opportunity for India Inc to tap into substantial foreign capital, potentially raising around $100 billion by 2026-27. As companies navigate these new guidelines, the changes in borrowing limits, flexible pricing, and relaxed end-use permissions will likely foster significant growth in external capital inflows, bolstering corporate expansions and acquisitions on a global scale.