As a consequence of the RBI‘s decision to restore the all-in-cost ceilings on external commercial borrowings (ECBs) with effect from January 1, banks may see improved credit demand, especially from mid-rung and smaller companies.
The restoration comes in the backdrop of poor credit pick-up from the banking system, easy rupee liquidity and the substantial thaw in the global financial markets. RBI has also eased rules for telecom and infrastructure firms for raising funds from abroad. With this move, bankers feel that only ‘AAA’ rated corporates will be in a position to raise resources at or below the prescribed ceiling and the mid and smaller corporates would find it virtually impossible and hence will gravitate to banks for debt funding. Credit growth of banks in the financial year so far (up to November 20) has been anaemic at Rs 1,23,221 crore as compared with Rs 2,71,267 crore in the corresponding period last year.
The RBI has also decided to discontinue the facility allowing Indian companies to buy-back their foreign currency convertible bonds, both under the automatic and approval route, with effect from January 1, 2010, in view of the prevailing macroeconomic conditions and global developments, especially improvements in the stock prices.
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