What changed
The all-in-cost ceiling on ECBs (300 bps for 3-5 years, 500 bps for >5 years over LIBOR) is suspended until June 30, 2009; borrowers exceeding earlier caps must now approach the Approval Route. Corporates developing integrated townships (min 100 acres or 2,000 dwelling units) are now permitted ECB under the Approval Route. NBFCs exclusively financing infrastructure can borrow from multilateral/regional/Government-owned DFIs for on-lending, subject to a 3:1 direct-to-indirect lending ratio. Hotels, hospitals, and software firms can now raise up to USD 100 million per year under the Automatic Route for foreign currency or rupee capital expenditure (excluding land acquisition).
What it means for you
Banks can expect increased ECB-related advisory and processing work as borrowers rush to take advantage of the cost ceiling holiday and new sector openings. The relaxation is temporary (review in June 2009), so lenders must ensure clients comply with reporting and end-use conditions. Infrastructure NBFCs will need careful monitoring of the 3:1 direct lending ratio certificate from lenders.
What you must do
- Update internal ECB policy manuals to reflect removal of all-in-cost ceilings until June 30, 2009.
- Advise eligible borrowers in integrated township, infrastructure NBFC, and hotel/hospital/software sectors about new Approval/Automatic Route options.
- Ensure NBFC clients obtain and maintain the 3:1 direct lending ratio certificate from multilateral/regional/DFI lenders.
- Verify that ECB proceeds for hotels/hospitals/software firms are not used for land acquisition.
- Prepare for increased ECB applications under the Approval Route for cases exceeding earlier cost caps.
Who it affects
Category-I Authorised Dealer Banks, Corporates developing integrated townships, Infrastructure-focused NBFCs, Hotels, hospitals, and software companies, Multilateral/regional/Government-owned development financial institutions
What is the new all-in-cost ceiling for ECBs after this circular?
There is no ceiling until June 30, 2009. Borrowers who would have exceeded the earlier caps (300 bps for 3-5 years, 500 bps for >5 years over LIBOR) must now apply under the Approval Route.
Can NBFCs now on-lend ECB funds to any infrastructure project?
Only NBFCs exclusively involved in infrastructure financing can on-lend to infrastructure borrowers, and only if the ECB is from multilateral/regional/Government-owned DFIs. The lender's direct lending to Indian infrastructure must be at least three times its ECB lending to such NBFCs.
What is the minimum area requirement for integrated township ECB eligibility?
The township must develop at least 100 acres, or in the absence of local bye-laws, a minimum of 2,000 dwelling units for about 10,000 population.