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RBI’s move to tighten ECB Norms opposed


RBI’s move to tighten norms for foreign borrowing is not likely to be a positive step forward in view of the still uncertain economic situation in the country, according to the Associated Chambers of Commerce & Industry of India (Assocham).
The stimulus package has shown the desired impact across most of the segments in the economy and needs to be continued including the easing measures unveiled last year at the peak of Global financial crisis for foreign borrowings.
The RBI with its reintroduction of price ceiling on overseas borrowings is likely to give negative signals and may be taken seriously by the market towards a major step to roll over a part of the government initiatives to encourage overseas capital inflows. The prevailing low interest rates in overseas borrowing segment has encouraged large capital inflows for various sectors including infrastructure, pointed out Assocham in a statement.
The step further to withdraw buy back facility of Foreign Currency convertible bonds with effect from 1st Jan., 2010 is also seen not in line with the Government concern to continue the stimulus for the time being till the growth as seen by GDP numbers is reassuring and durable for the next at least two quarters, said Assocham.
The credit offtake from commercial banks is still an area of concern mainly due to higher cost of funds consequently resulting in higher cost of lending. The better alternative would have been if RBI has initiated and advised Banks to lower the lending rates at least by 200 bps all across to encourage and provide incentive to the Corporates to draw more credit from Banks, Assocham suggested.
The recent RBI move to limit the Banks parking huge funds with mutual funds is a right move in right direction. The huge liquidity by banks is not being deployed for creating loan assets where they are adamant to reduce lending rates and take additional risk to sustain and enhance the credit off take momentum, it remarked.
Going forward , the RBI which has already signaled steps towards exit policy in the last Mid Term Policy review by increasing SLR by 100 bps to 25%, the recent step of shutting FCCB buyback door and cap on the all -in -cost ceiling for ECB from 1st Jan, 2010 with exceptions for telcom companies for 3 G spectrum and developers for setting up integrated townships, is likely to be a disincentive for the market and may slow down the efforts for a faster than expected recovery in the economy, Assocham stated.

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