Date:04/01/2009 URL: http://www.thehindubusinessline.com/2009/01/04/stories/2009010451220300.htm

Back Hotels, hospitals given more freedom to use ECBs

New leeway under economic stimulus package.

The new package will help channelise long-term funds to important sectors like infrastructure.

Our Bureau

New Delhi, Jan. 3 Companies in the hotels, hospitals and software sectors can now raise external commercial borrowings (ECBs) under the automatic route and use the proceeds for both foreign currency and/or rupee capital expenditure. They could raise ECBs of up to $100 million a financial year and utilise them for permissible end uses other than for land acquisition.

This new regime has been allowed as part of the latest ECB policy changes made under the economic stimulus package announced on Friday.

Hitherto, the entities in the services sector — hotels, hospitals and software sectors — could avail ECB of up to $100 million every financial year only for import of capital goods under the approval route.

Meanwhile, for NBFCs exclusively involved in financing of infrastructure sector, the Government has allowed them to avail of ECBs from multilateral/regional financial institutions and government-owned financial institutions under the approval route.

“While considering the applications, RBI will take into account the aggregate commitment of these lenders directly to infrastructure projects in India. The direct lending portfolio of the above lenders vis-À-vis their total ECB lending to NBFCs, at any point of time should not be less than 3:1. This facility will be reviewed in June 2009,” a Finance Ministry release said.

Channelising funds

Reacting to the slew of measures announced on the ECB policy front, Mr Ashvin Parekh, National Leader of Financial Services, Ernst & Young, told Business Line that these were in the right direction and would help channelise long term funds to important sectors like infrastructure.

“The Government is keen to ensure that funds do not end up in speculation. Policy changes are signalling a shift both in terms of tenure of funds and colour of money that is being invited. That is why in the case of ECB relaxation for NBFCs, the onus is now on both the lender (multilateral/regional financial instution) and borrowing NBFC to ensure that at least 75 per cent of ECB fund flows are at all times invested in infrastructure projects,” he noted.

On the move to remove all-in-cost ceilings for ECBs, he pointed out that the Government and regulator was moving away from the issue of pricing of instruments and leaving it to investor and issuer. “This is a welcome move as it (pricing of ECBs) is essentially a story between the issuer and investor,” Mr Parekh said.