What changed
The all-in-cost ceiling relaxation under the approval route, which was in place until December 31, 2009, is withdrawn. From January 1, 2010, new ceilings apply: 300 bps over 6-month Libor for 3-5 year maturity, and 500 bps for over 5 years. The facility for buyback of FCCBs is discontinued from January 1, 2010. NBFCs exclusively financing infrastructure can now access ECB from recognized lenders including international banks under approval route, subject to prudential norms and full hedging.
What it means for you
Banks and corporates must prepare for tighter ECB cost conditions from 2010, as the earlier relaxation ends. The FCCB buyback window closes, limiting refinancing options for companies. NBFCs in infrastructure get broader lender access, but must ensure full currency hedging and compliance with RBI prudential norms, which AD Category-I banks must certify.
What you must do
- Review all ECB loan agreements signed after Dec 31, 2009 to ensure all-in-cost stays within new ceilings (300 bps for 3-5 yrs, 500 bps for >5 yrs over Libor).
- Advise clients planning FCCB buybacks to complete transactions before December 31, 2009.
- For NBFC clients in infrastructure, facilitate ECB applications under approval route from international banks, ensuring full hedging and prudential compliance.
- Update internal systems and training to reflect the revised ECB policy effective January 1, 2010.
Who it affects
AD Category-I banks, Corporates availing ECB under approval route, NBFCs exclusively financing infrastructure, Companies with outstanding FCCBs
What are the new all-in-cost ceilings for ECB under approval route from January 1, 2010?
For loans with average maturity of 3 to 5 years, the ceiling is 300 basis points over six-month Libor. For maturity over 5 years, it is 500 basis points over Libor.
Can NBFCs financing infrastructure now borrow from international banks?
Yes, with immediate effect, such NBFCs can avail ECB from recognized lenders including international banks under approval route, provided they fully hedge currency risk and comply with RBI prudential norms.
Is the FCCB buyback facility still available after December 31, 2009?
No, the facility is discontinued from January 1, 2010. All buybacks must be completed by December 31, 2009.