What changed
The temporary relaxation of all-in-cost ceilings on ECB under the approval route, initially set to expire on June 30, 2009, has been extended to December 31, 2009. This extension follows the announcement in the Annual Policy Statement 2009-10, citing continued pressure on international credit spreads. The relaxation will be reviewed in December 2009.
What it means for you
Borrowers can now approach RBI under the approval route for ECB beyond standard cost ceilings until end-2009, offering more flexibility in a tight credit market. For banks, this means continued opportunities to facilitate ECB deals for eligible clients without the usual cost cap, but due diligence on borrower eligibility and end-use remains critical. The extension signals RBI's support for external funding amid global market stress.
What you must do
- Inform corporate clients about the extended ECB cost ceiling relaxation under the approval route until December 31, 2009.
- Ensure all ECB transactions comply with unchanged norms like the USD 500 million automatic route limit, eligible borrower, lender, end-use, and maturity requirements.
- Advise clients to approach RBI under the approval route for ECB proposals exceeding all-in-cost ceilings.
- Monitor the December 2009 review for any policy changes.
Who it affects
Category-I Authorised Dealer Banks, Corporate borrowers eligible for ECB, AD banks facilitating ECB transactions
What is the all-in-cost ceiling relaxation for ECB?
RBI has temporarily waived the all-in-cost ceilings on ECB under the approval route, meaning borrowers can seek approval for loans with higher costs than normally allowed. This relaxation is now extended until December 31, 2009.
Does this change affect the automatic route limit of USD 500 million?
No, the USD 500 million limit per company per financial year under the automatic route remains unchanged. Only the cost ceiling under the approval route is relaxed.
What should banks do to comply with this circular?
Banks must bring the extension to the notice of their customers, ensure all other ECB guidelines are followed, and guide clients to approach RBI for approval if cost ceilings are exceeded.