RBI hikes external commercial borrowing limit by $10 billion

New Delhi: In a bid to check rupee's free falling against the US dollar, the Reserve Bank of India (RBI) on Monday hiked the limit of external commercial debt by $10 billion. Moreover, the regulator also increased the limit of overseas investment in government bonds by $5 billion to $20 billion.

"It has been decided to allow Indian companies in manufacturing and infrastructure sector and having foreign exchange earnings to avail of external commercial borrowing (ECB) for repayment of outstanding Rupee loans towards capital expenditure and/or fresh Rupee capital expenditure under the approval route. The overall ceiling for such ECBs would be USD 10 billion," RBI said in a press release after consulting the government of India.

Currently, foreign institutional investors (FIIs) can invest in Indian corporate bonds upto $20 billion. While the cap in government bonds is at $15 billion, FIIs are barred to invest in infrastructure bonds upto $25 billion.

Currently, foreign institutional investors can invest in Indian corporate bonds upto $20 billion.

Overseas investors so far have not shown enough interest in infra bonds while the demand for corporate bonds and government bonds are relatively higher.

Currently, FIIs can earn an interest rate in the range of 9.30-9.50 per cent for a AAA rated instrument. For corporate bonds, it is slightly higher in the range of 9.70-9.75 per cent for the similar kind of papers.

Side by side, RBI made efforts to tap investments by qualified foreign investors (QFIs) to resist rupee's downfall against the greenback.

QFIs, according to the release, can now invest in mutual fund schemes that hold at least 25 per cent of their assets (either in debt or equity or both) in infrastructure sector under the current USD 3 billion sub-limit for investment in mutual funds related to infrastructure.

"The terms and conditions for the scheme for FII investment in infrastructure debt and the scheme for non-resident investment in Infrastructure Development Funds (IDFs) have been further rationalised in terms of lock-in period and residual maturity," RBI added further.

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