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Mumbai:
The government has tightened overseas borrowing
rules for domestic companies, making it harder for less
creditworthy and smaller firms to raise funds. The government
also said the use of overseas borrowings for development
of integrated townships would also be stopped.
The
interest rate ceiling has been lowered to 150 basis
points over six-month Libor from the earlier 200 basis
points for overseas borrowings by Indian companies for
maturities between three and five years, the finance
ministry said in a statement.
For
maturities over five years the ceiling has been reduced
to 250 basis points over six-month Libor from 350 basis
points.
It
said the ceilings had been revised in view of the upgrading
of the country''s sovereign credit ratings.
"It
has been decided to withdraw the exemption accorded
to the development of integrated townships as a permissible
end-use of external commercial borrowings(ECB),"
the statement said.
The
Reserve Bank of India (RBI) had been trying to cool
the real estate sector in its battle against rising
inflation and has asked banks to reduce their exposure
to the sector.
Wholesale
inflation rose to a two-year high of more than 6.5 per
cent earlier this year. It slowed to 5.44 per cent in
the first week of May, as an appreciating currency,
higher interest rates and import tax cuts helped ease
price of manufactured goods.
ECB
inflows in 2006-07 were $5.09 billion, up from the previous
year''s $2.92 billion, according to RBI. The surge in
ECB flows, along with that of foreign direct investment,
added to the money supply in the country, resulting
in a rise in inflation.
Indian
companies have been on a record overseas borrowing spree.
Local firms raised $15.76 billion in foreign borrowings
during April-December 2006. This signals an 80 per cent
rise in such borrowings compared to April-December 2005
when Indian companies borrowed $8.77 billion.
Total
borrowings for the full fiscal ''06-07 now seem set to
top the $22-billion mark. The latest data on foreign
borrowings released by the Reserve Bank of India confirms
the huge appetite displayed by Indian
corporates for raising relatively cheaper cost funds
overseas
The
figures include both overseas loans, bonds and also
foreign currency convertible bonds (FCCBs).
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