What changed
RBI redefined the benchmark rate for FCY ECBs and TCs from 6-month LIBOR to any widely accepted interbank rate or ARR of 6-month tenor. The all-in-cost ceiling for new FCY ECBs and TCs was raised by 50 bps to 500 bps and 300 bps, respectively, over the new benchmark. For existing ECBs/TCs transitioning from LIBOR to ARRs, the ceiling was increased by 100 bps to 550 bps and 350 bps, respectively.
What it means for you
Banks and lenders must update their loan documentation and pricing models to reference ARRs instead of LIBOR for FCY ECBs and TCs. The higher all-in-cost ceilings provide headroom for the credit risk and term premia differences between LIBOR and ARRs, ensuring smoother transition. This change applies only to FCY borrowings; INR benchmarks remain unchanged.
What you must do
- Update internal systems and loan agreements to reference ARRs instead of LIBOR for FCY ECBs and TCs.
- Ensure that any revision in all-in-cost ceiling for existing loans is solely due to LIBOR transition and not other factors.
- Communicate the revised benchmark and ceiling changes to all constituents and customers dealing with FCY ECBs and TCs.
- Monitor compliance with the new all-in-cost ceilings of 500 bps (new) and 550 bps (existing) for ECBs, and 300 bps (new) and 350 bps (existing) for TCs.
Who it affects
Category-I Authorised Dealer Banks, Borrowers of foreign currency ECBs and TCs, Lenders and arrangers of FCY ECBs and TCs
What is the new benchmark rate for FCY ECBs and TCs?
The benchmark rate now refers to any widely accepted interbank rate or alternative reference rate (ARR) of 6-month tenor applicable to the currency of borrowing, replacing the earlier 6-month LIBOR.
How much has the all-in-cost ceiling increased for new FCY ECBs?
The all-in-cost ceiling for new FCY ECBs has been increased by 50 basis points to 500 bps over the benchmark rate.
Does this circular affect INR-denominated ECBs or TCs?
No, there is no change in the all-in-cost benchmark and ceiling for INR ECBs or TCs.