RBI relaxes ECB and overseas investment norms

The Reserve Bank of India on Wednesday eased norms for external commercial borrowing (ECB) and partially relaxed its restriction imposed last month on capital outflows from the residents on their overseas investments.

As per the existing ECB policy, borrowings in the form of ECB cannot be used for general corporate purposes. In its review, RBI has decided to permit eligible borrowers to avail of ECB under the approval route from their foreign equity holder company with minimum average maturity of seven years for general corporate purposes subject to conditions.

It has said a minimum paid-up equity of 25 per cent should be held directly by the lender; such ECBs would not be used for any purpose not permitted under the ECB guidelines (including on-lending to their group companies/step-down subsidiaries in India) and repayment of the principal shall commence only after completion of minimum average maturity of seven years.

With respect to the overseas direct investments, RBI has clarified that all the financial commitments made on or before August 14, 2013, in compliance with the earlier limit of 400 per cent of the net worth of the Indian party under the automatic route will continue to be allowed. In other words, such investments shall not be subject to any unwinding or approval from RBI.

Moreover, the limit of financial commitments for an Indian party (presently 100 per cent of its net worth) shall not apply to the financial commitments funded out of Exchange Earners' Foreign Currency Account.

(Edited by Joby Puthuparampil Johnson)

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