RBI eases external commercial borrowing hedging provisions

The Reserve Bank of India (RBI) has decided to reduce the mandatory hedge coverage from 100 per cent to 70 per cent for external commercial borrowings (ECBs) by eligible borrowers for a maturity period between 3 and 5 years.

On November 6, 2018, the RBI reduced the minimum average maturity requirement for ECBs in the infrastructure space to three years from earlier five years, a notification said. Additionally, the average maturity requirement for mandatory hedging has been reduced to five years from earlier ten years, the central bank said. The central bank further clarified that ECBs falling under the revised criteria but raised prior to the date of this announcement will not be required to mandatorily roll-over their existing hedges. These rules are applicable to eligible borrowers raising foreign currency denominated ECBs under Track I.

The new rules will make it slightly cheaper for Indian companies and banks to tap the debt markets overseas. In recent months, the cost of borrowings in markets abroad has gone up, partly because of the spike in interest rates in the US and also because the spreads have widened, especially for companies in the emerging markets. In September, ECB borrowings totalled $1.7 billion, far lower than the $4.8 billion raised in August. In July, the borrowings were $2.2 billion.

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