ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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External Commercial Borrowings : Turning the Screw

Turning the Screw The steps announced by the finance ministry and the Reserve Bank to tighten the regulation of borrowing abroad by Indian companies have predictably evoked sharp reactions. Total permitted borrowings, capped at US $ 9 billion earlier, have been halved to $ 4.5 billion under the new policy. The cut though has to be seen in the light of the actual foreign borrowings by Indian companies last year which were around $ 4 billion. The maximum interest rate at which companies can borrow abroad has also been lowered by reducing the permissible spread over the LIBOR from 300 to 150 basis points. Infrastructure and long-term projects have been allowed higher interest rate caps, but in their case too the permitted spread has been reduced to 250 and 300 basis points above LIBOR from the earlier 400 and 450 basis points respectively.

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