With Indian banks likely to face a cash crunch for lending, the government has relaxed the norms for external commercial borrowings (ECB) for domestic companies engaged in infrastructure sectors such as power, roads, airport and ports.
Under the revised guidelines issued by the finance ministry on Monday, companies developing infrastructure projects can now borrow up to $500 million a year for spending in the Indian Rupee in India. This represents a five-fold hike over the existing ceiling of $100 million.
The move is expected to give flexibility to borrowers looking at long-term funds since domestic interest rates are high, analysts said. The companies will, however, have to seek permission from Reserve Bank of India to bring funds into India for expenditure in the Indian Rupee.
Despite the global financial turmoil following the collapse of American investment bank Lehman Brothers and snapping-up of Merrill Lynch by Bank of America, funds can still be accessed overseas at cheaper interest rates than in India, analysts said.
With higher interest rates at home, many Indian companies find it difficult to raise money for their expansion plan.
As infrastructure companies can now raise more funds from abroad, the pressure on domestic banks' funds will come down to some extent, allowing other sector companies to generate money from market at home, the analysts said.