External Commercial Borrowings Will Now Be Subject To A Prudential Limit
A U.S. one-hundred dollar banknote and Indian ten rupee banknotes are arranged for a photograph in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

External Commercial Borrowings Will Now Be Subject To A Prudential Limit

The Government and the Reserve Bank of India have decided to set prudential limits on the amount of external commercial borrowings that can be raised by Indian firms. While, so far, the regulator worked with some internal benchmarks, it has now put out the limits in the public domain.

According to a notification issued on Thursday, the stock of external commercial borrowings will be restricted to 6.5 percent of GDP. The limit, since it is linked to the country’s GDP, will be a dynamic one. As such the quantum of funds that Indian corporates can raise overseas will depend on the existing stock of external borrowings and the room left before the limit of 6.5 percent of GDP is breached.

“Based on the GDP figures as on March 31, 2018, the limit works out to $160 billion for the current financial year. The outstanding stock of ECB as on September 30, 2018, stood at $126.29 billion,” said the RBI in its statement.

All other rules governing external borrowings, such as sectoral caps and all-in-cost ceilings, will remain in place.

The cap will help keep external liabilities within comfortable limits from the financial stability viewpoint, said a senior banker who spoke on condition of anonymity. Adequate limits are available as of now to meet any overseas fund raising needs of Indian firms, the banker said.

As of June 2018, India’s external debt stood at $514 billion. Commercial borrowings continued to be the largest component of external debt with a share of 37.8 percent, RBI data showed.

Also read: Government Commits Additional Funds For Bank Recapitalisation

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