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FICCI lauds relaxation of ECB norms

The Federation of Indian Chambers of Commerce and Industry or FICCI today welcomed the relaxation of external commercial borrowing norms. This would ''induct flexibility'' in restructuring the portfolios of the Indian companies.

The government permitted yesterday pre-payment of foreign currency loans amounting to ten per cent of the outstanding debt on the pre-payment of ECBs with residual maturity of upto one year.

The FICCI said that corporates in general have expressed their willingness to pre-pay their ECBs in order to replace them with cheaper domestic funds on account of reduction in the interest rate.

The retiring of foreign currency debt or a part of the debt will also help the corporates to go for fresh loans in the international market where a slump in the interest rates of the debt funds is expected.

The chamber expressed hope that the pre-payment schedules have to be well calibrated so as to avoid bunching which will have a deleterious impact on the stability of the foreign exchange rate.

FICCI has taken up with the finance ministry that the corporates should be permitted to pre-pay ECBs upto 20 per cent of the outstanding foreign currency loan. Prior to July 1998, this ''accommodation'' was given by the finance ministry, which was later withdrawn.

Given the record foreign exchange reserves the country now has, it would be prudential to increase the limit to 20 per cent for enabling companies to switch over to debt instruments carrying lower rates of interest.

The flexibility in the pre-payment of ECBs with residual maturity upto one year will help corporates to plan for new ECBs at lower rates of interest and with a long-term spread for repayment.

FICCI has also welcomed the doubling of ECBs' eligibility to export earning foreign exchange from a maximum of $ 100 million to $ 200 million. At a time when exports growth has to be consolidated, it will give a critical push to export promotion efforts. FICCI has urged that ECBs should also be allowed for real estate and household development in order to give a critical boost to this segment.

UNI

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