2019 – Posted in: Daily News – Tags: Non-Banking Financial Company

EXTERNAL COMMERCIAL BORROWING

For: Mains

Topics covered: The Revised framework for ECB, Features and Significances, External commercial borrowings, Non-Banking Financial Companies

The Reserve Bank of India has revised the framework for external commercial borrowing (ECB).

RBI has relaxed the end-use restrictions with regard to working capital, general corporate purpose and repayment of Rupee loans.

This move will allow greater access of funds for corporates and non-banking finance companies and will help in easing the current liquidity conditions.
It will also help in improving the present liquidity situation in the economy.
These measures will help in reviving the growth of several sectors which are presently facing challenges due to lack of adequate capital.

All the eligible borrowers have been allowed to raise External Commercial Borrowings from recognised lenders.
The minimum average maturity period of 10 years for working capital purposes and for general corporate purposes and with a minimum average maturity period of 7 years for repayment of Rupee loans availed domestically for capital expenditure as also by NBFCs for on-lending for the same purpose.
For repayment of loans availed domestically for purposes other than capital expenditure and for on-lending by Non-Banking Financial Companies for the same, the minimum average maturity period of the External Commercial Borrowings is required to be 10 years.
Eligible corporate borrowers have also been permitted to avail External Commercial Borrowings for repayment of Rupee loans availed domestically for capital expenditure in the manufacturing and infrastructure sector and classified as SMA – 2 (special mention account) or NPA, under any one-time settlement arrangement with lenders.

ECBs are loans in India made by non-resident lenders in foreign currency to Indian borrowers.
They are used in India to facilitate access to foreign money by Indian corporations and public sector undertakings.
ECBs include commercial bank loans, buyers’ credit, suppliers’ credit, securitized instruments such as floating rate notes and fixed-rate bonds, etc.

An NBFC is a company registered under the Companies Act, 1956.
NBFC is engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities.
It does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of an immovable property.
A non-banking institution which is a company and has a principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner.

Such timely measures are important to provide the much-needed push to the slowing economy.

You are on the Best Online IAS preparation platform. You are learning under experts.

We are present on Facebook- Diligent IAS, LinkedIn- Diligent IAS, YouTube- Diligent IAS, Instagram- Diligent IAS. Get in touch with us.