external commercial borrowing
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  • India’s total external debt stock was US $ 251.4 billion at the end of december 2009 Total long term debt has rose to 82 % Short term loans was 18%

Transcript

  • 1.
    • What is external commercial borrowing?
    • ECB is defined as commercial loans [in the form of bank loans, buyers’ credit, suppliers’ credit, securitized instruments (e.g. floating rate notes and fixed rate bonds, CP)] availed from non-resident lenders with minimum average maturity of 3 years
    • Regulators:
    • The department of Economic Affairs, Ministry of Finance, Government of India with support of Reserve Bank of India.
  • 2.
    • Raising funds from other country is cheap
    • Investment and resource availability
    • Expansion of projects
    • Fixed rate of interest
    • Alliances
    • Can not be used for investment in stocks and real estate sector
  • 3.
    • Annual cap is maximum amount which can be borrowed during one financial year.
    • The cap was $8.3 BN in 2000 which is further raised to $40 BN in 2010 in move to make availability of funds for rapidly recovering economy.
  • 4.
    • Commercial bank loans
    • Buyer’s and suppliers credit
    • Securitized instruments such as floating rate notes, govt. bonds
    • Credit from official export credit agencies
    • Aid from institutions such as IFC, ADB, AFIC, CDC
    • Foreign institutional investors invested in debt funds
  • 5.
    • Loan from foreign equity holder
    • Lines of credit from foreign banks and institutions
    • Financial lease
    • Import loans
    • FCCB’s
    • Non convertible, partially convertible and optionally convertible debentures and preference shares
    • Asset backed securities, Mortgage backed securities.
  • 6.  
  • 7.
    • Approval Route
    • Financial institutions dealing with infra or export finance, textile or steel sector restructuring
    • Multi-state cooperatives engaged in manufacturing activities
    • NGO in microfinance activities
    • Corporates in service sector for import of capital goods
    • Automatic Route
    • - Indian companies (except NBFC’s, Financial institutions, GO)
    • SEZ is permitted
    • Individuals, trusts not allowed.
  • 8.
    • International banks, international capital markets, multilateral financial institutions such as IFC, ADB, CDC)
    • Foreign equity holder can also be lender
    • -person must hold atleast 25% equity capital
    • -debt-equity ratio shoud not exceed 25%, in case of approval route it may exceed 25% if RBI permits
    • Individual lender has to acquire certificate of due diligence
  • 9.
    • For Automatic route
    • Amount upto $20 mn or equivalent- 3 years
    • Amount exceeding $20 mn to $500 mn- 5 years
    • Maximum amount eligible during one financial year- $ 500 MN
    • For Automatic Route
    • Additional amount of $250 mn with maturity over 10 years
    • ECB upto $ 100 mn for infrastructure projects and industrial sector
    • ECB upto $50 mn for rupee capital expenditure
    • For NGO’s in microfinance activity, amount upto $5 mn
    • Corporates in service sector - $ 100 mn, per borrower for import of capital goods
  • 10.
    • Automatic Route
    • Import of capital goods in real estate sector, industrial sector
    • For infra sector
    • Overseas investment in joint ventures and wholly owned subsidies
    • Payment to govt. for obtaining license
    • Approval Route
    • Implementation of new projects, modernization and expansion of projects
    • Import of capital goods by service sector companies
    • First stage of acquisition of shares and also in second stage offer to public
    • Refinancing of existing ECB
  • 11.
    • Issuance of guarantee, standby letter of credit, letter of undertaking or letter of comfort by banks, financial institutions and NBFCs relating to ECB’s are not permitted.
    • Issuance of guarantees in case of textiles company for expansion, modernization is permitted under RBI approval route.
    • FEMA gives guarantees to a person/corporate outside India under certain circumstances.
    • Choice of security is left with the borrower.
    • Banks have been delegated powers to NOC certificate.
    • Transactions are controlled and secured by FEMA act.
  • 12.  
  • 13.
    • Only approved if done through foreign equity inflow
    • On permission of RBI, Govt. it may be undertaken within permitted period with
    • residual maturity upto 1 year.
    • Prepayment of 10% outstanding ECB is permitted during the life of loan once.
    • Permitted with Approval of RBI, Govt and Dept. Of Economic Affairs
  • 14.  
  • 15.  
  • 16.
    • It refers to credit extended by for imports directly by overseas supplier, financial institutions for maturity less than 3 years.
    • Two types: buyers credit and suppliers credit
    • AD banks are permitted to approve trade credits upto $20 Mn per transaction with maturity period >1 year and less than < 3 years.
    • Not permitted above $2o mn.
    • All in cost ceiling includes:
    • Up to 1 year: 75 basis points
    • 3< Maturity period >1: 125 basis points
  • 17.  
  • 18.
    • Top sectors or top raisers of ECB were power being the first followed by telecom and financial institutions .
  • 19.
    • In 2008 the total amount raised to the tune of 2.77$ Bn
    • Power sector emerged as biggest borrower with $1.82 Bn
    • The ECB amount raised in all the other sectors were oil ($783 million), shipping $692.71 million), aviation ($585.36 million), infrastructure ($580.58 million), textiles and garments ($575.68 million), metals ($537.67 million).
  • 20.
    • Orchid chemicals and pharmaceuticals has opted for he ECB route to partly buyback its FCCB
    • Move helped the company to bring down it s debt-equity ratio
    • ECB route gave company longer tenure of repayment
    • The company reduced its outstanding FCCB’s from $194Mn to $154Mn.
  • 21.
    • with a liberalization stance NBFC are involved in financing of the infra sector are now allowed to raise ECB
    • With a view to give thrust to infra sector a separate category of NBFC’s were created as IFC, proposals for which will be considered through approval route
    • All in cost ceilings limits were extended
    • -For 3 to 5 years – 300bps
    • -More than five years- 500bps
    • To augment growth of agriculture definition of infrastructure was expanded
    • ECB beyond $ 100 mn in service sectors under approval route
  • 22.