ECB prepayment guidelines eased by RBI - Views on News from Equitymaster

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ECB prepayment guidelines eased by RBI

Nov 24, 1999

The Reserve Bank of India has relaxed further the norms for prepayment of external commercial borrowings (ECBs). Indian corporates would now be permitted to prepay ECBs on the basis of a single approval from the same authority, which had approved the ECB earlier.
source CMIE

The move is in the right direction as over the last few years the interest-servicing burden for external debt has considerably reduced. In fact, forex reserves have witnessed a significant accretion.

The easing of prepayment guidelines will enable corporates to substitute costlier foreign debt (due to depreciation of the Rupee the cost stands enhanced) with funds raised from the primary markets or other domestic sources. Some companies would be able to reduce their overall debt exposure in case they are no longer in need of external funding.

Earlier a number of Indian corporates raised money in the international markets owing to the lower rates prevailing there and the need for forex resources to make purchases and/or acquisitions in the international markets. However, the continued depreciation of the Indian Rupee vis a vis the other currencies led to a significant increase in the cost of debt at the time of payment of interest and the repayment of debt. The companies without a forex cover had to bear the brunt of the losses.

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