Question: Consider the following statements regarding External Commercial Borrowings (ECBs):
1) ECBs is basically a loan availed by an Indian entity from a non-resident lender
2) Maturity period for ECBs is up to five years
Of the above choose the correct options:
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Answer: (c)
Related facts:
- Reserve bank of India has decided to reform external commercial borrowings (ECBs) norms, allowing all companies that are eligible for receiving foreign direct investment, to raise funds through the ECB route.
- The list of eligible borrowers has been expanded.
- The RBI has decided to keep the minimum average maturity period at three years for all ECBs, regardless of the amount of borrowing, except for borrowers specifically permitted to borrow for a shorter period.
- The minimum average maturity period was five years before 2019. The ceiling for borrowing remains at $750 million.
- All eligible borrowers can now raise ECBs up to $750 million or similar per financial year under the automatic route replacing the existing sector-wise limits.
- This change increases lending options and allows various new lenders in ECB space while strengthening the (anti money laundering / combating the financing of terrorism) framework.
- RBI had capped funds via ECBs at 6.5% of GDP, at current market prices. Based on GDP figures for March 31, 2018, the Soft limit works out to $160 billion.
- ECB is a basically a loan availed by an Indian entity from a nonresident lender.
- • Most of these loans are provided by foreign commercial banks and other institutions.
Links:
https://www.thehindu.com/business/Industry/ecb-norms-eased/article26006851.ece
https://www.bloombergquint.com/business/rbi-eases-external-commercial-borrowing-framework#gs.xAyJXfDn
https://economictimes.indiatimes.com/markets/stocks/news/rbi-further-simplifies-ecb-norms/articleshow/67560317.cms
https://www.indianeconomy.net/splclassroom/what-is-external-commercial-borrowings-ecbs-what-are-their-advantages/