ECB's be allowed under 'automatic route' for NBFCs: ASSOCHAM

New Delhi, Apr 12 (UNI) External Commercial Borrowings (ECBs) with minimum average maturity of three years raised by Non-Banking Finance Companies (NBFCs) should be allowed under the 'automatic route' and be permitted to finance all types of equipment, according to ASSOCHAM.

The Associated Chambers of Commerce and Industry (ASSOCHAM), in a representation submitted to the Reserve Bank of India (RBI), has suggested that ECBs raised by NBFCs from multilateral financial institutions, reputable regional financial institutions, official export credit agencies and international banks for financing equipment and infrastructure projects, be allowed under the 'automatic route'.

ASSOCHAM President Anil K Agarwal said the regulated NBFCs be allowed to access ECBs freely and utilise them with no pre-conditions. As per the present policy, normal corporates are allowed to raise ECBs up to Rs 50 crore without any eligibility criteria.

According to the Chamber, NBFCs have been allowed to access ECBs through the 'approval route', which is a time-consuming affair and the possibility of discrimination cannot be ruled out.

When the government acknowledges the importance of speedy infrastructure creation, it defies why NBFCs, which finance both infrastructure equipment and projects, are allowed to access ECBs through the 'approval route'.

NBFCs have been allowed to use ECBs for import of infrastructure equipment for onward leasing with minimum average maturity of 5 years.

In this regard, it is worth pointing out that equipment financing usually involves an average maturity of 3 years. Even Export Credit Agencies (ECAs) of foreign countries (like US Exim) provide equipment backed line of credit for maximum 3 years.

NGOs involved in micro financing activities are also allowed to access ECBs freely. These are entities not regulated by RBI, whereas NBFCs are well regulated by RBI, and the apex bank's credit policy should address this issue, Mr Agarwal felt.

Mr Agarwal said that for NBFCs, ECBs are a source for tapping long-term funds at low interest rates, as they can provide the much-needed long-term capital for infrastructure projects. The resultant benefits to the economy from such infrastructure projects are mani-fold in terms of employment and revenue generation.

The ECB funds also enable NBFCs to play an important role in lending to a huge number of small and medium players in the construction, transportation sectors (which are crucial for undertaking of large-scale infrastructure projects).

In most cases big projects are sub-contracted to SME players who do not enjoy easy access to bank loans. The NBFCs fill in this gap with their deeper geographical reach and their in-depth knowledge of these customers. Thus, the ECB funds can be properly channelised through NBFCs to such target players.

Even the government acknowledges this fact. Foreign agencies which provides ECBs also feel comfortable channelising their funds through such specialised local intermediaries.

Thus NBFCs serve as a crucial link between the international funding agencies and the domestic end-users. In the process, the risk also gets adequately shared making the on-lending process more effective and focused.

ECBs are important in India today in the backdrop of scarcity of long-term funds and also due to the gradual demise of developmental financial institutions (DFIs).

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