ECBs may fetch lower interest

External commercial borrowings form an integral part of foreign capital inflows and the Reserve Bank of India has to absorb the rupees used to buy dollars to curb rupee appreciation.The government is considering the option of reducing the interest rate on external commercial borrowings (ECBs) to discourage companies from accessing this route.

This may form part of the government’s review of the ECB policy, even as the Reserve Bank of India and the finance ministry have been taking several measures to reduce money supply and thereby inflation.

The government currently prescribes the ceiling on interest rates for external commercial borrowings. At present, the cost of raising a five-year ECB is 350 basis points above the London interbank offered rate (Libor). For loans with a maturity of three to five years, the cost is 200 bps over Libor, which is the international benchmark for interest rates.

Read more in The Business Standard article.