Govt eases up external commercial borrowing rules

"It has been decided that hence forth ECBs can be used for any purpose except investment in real estate and in capital markets," the statement said.

The government also said that external borrowing agreements by public sector undertakings should no longer contain requirements that the government should continue to retain at least a 51 per cent equity stake in these firms.

"In view of the on-going disinvestment programme such covenants should not be incorporated in the loan agreements," it said. The government said all infrastructure projects would be permitted to have external commercial borrowing exposure up to 50 per cent of the project cost as appraised by a recognised financial institution/bank, subject to the fulfillment of other ECB guidelines.

"Greater flexibility beyond 50 per cent of the project cost may be allowed in case of power sector and other infrastructure projects based on merits," it said.

The government also allowed 100 per cent prepayment of ECBs in cases where the source of funds is from the Export Earners Foreign Currency (EEFC) accounts. It relaxed ECB approval procedures reducing the number of steps needed for such approvals.

"In respect of operating and out-of-pocket expenses incurred for ECB approvals not resulting in loans, such expenses would be allowed as per prevailing Reserve Bank of India (RBI) guidelines on current account transactions subject to a cap," the statement said.

Corporates would have to obtain approval of the RBI for remittances of such expenses and the central bank would issue appropriate instructions in this regard, it said.