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RBI, govt spat over ECB norms

Central Bank wants to curb state-owned finance companies' access to external borrowings.

Differences seem to have cropped up between the Reserve Bank of India and the Centre over allowing public sector finance companies access to external commercial borrowings.

According to sources, the RBI is of the view that state-owned finance companies should not be allowed to borrow from overseas as they represent a “surrogate sovereign risk.”

In the Fiscal Responsibility and Budget Management Act regime, the proportion of foreign debt is a critical issue. Most PSU financing companies such as Power Finance Corporation and Indian Railway finance Corporation tap the market with government guarantee, which indirectly represents a sovereign risk.

The government is of the view that PSU finance companies could not be discriminated against other finance firms that tap the market.

Sources added that since the issue could not be resolved, the meeting for the review of the ECB policy could not take place.

One of the other major agenda for the meeting was considering a hike in amount allowed under automatic route for certain sectors such as infrastructure especially power.

At present, corporates are allowed to borrow up to $500 million under the automatic route. With the government putting greater impetus on infrastructure projects, there is, however, a need to approve ultra mega infrastructure projects, especially in the power sector.

Ultra mega infrastructure are for projects of capacity of over and above 1000-5000 megawatt that might need investments of around Rs 10,000-15,000 crore.

Secondly, there is a proposal to raise ECBs for reimbursement of capital expenditure by a corporate. The government will, however, have to put a rider as to ensure that domestic loans are not getting reimbursed instead of capital expenditure.

Further, the norms for ECBs for non-banking finance companies (NBFCs) is likely to be relaxed for those involved in infrastructure projects.

At present, such NBFCs raise ECBs for importing capital goods and leasing it to other companies. They may be allowed to raise ECBs for onlending in the domestic market for project finance as well.



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