Thursday, 10 November 2016

RBI issues Clarifications on Hedging for External Commercial Borrowings

The Reserve Bank of India (RBI) issued clarifications on hedging of currency for external commercial borrowings (ECBs) in a notification on its website. The ECB borrower will be required to cover both principal as well as coupon payments through the hedges done, starting from the day of borrowing, the notification said. The hedging period will be for the entire life of the liability with a minimum one-year rollover
option, ensuring that the total exposure is not unhedged at any point of time.
The borrower has to hedge in such a manner that the projected cash flows match the expectation of the borrowers irrespective of the fluctuations in the foreign currency.
The designated banks will have the responsibility of verifying that 100% hedging requirement is complied with.


An external commercial borrowing(ECB) is an instrument used in India to facilitate the access to foreign money by Indian corporations and PSUs (public sector undertakings).
ECBs include commercial bank loans, buyers’ credit, suppliers’ credit, securitised instruments such as floating rate notes and fixed rate bonds etc., credit from official export credit agencies and commercial borrowings from the private sector window of multilateral financial Institutions.
Such as International Finance Corporation (Washington), ADB, AFIC, CDC, etc. ECBs cannot be used for investment in stock market or speculation in real estate.
The DEA (Department of Economic Affairs), Ministry of Finance, Government of India along with Reserve Bank of India, monitors and regulates ECB guidelines and policies.

RBI issues Clarifications on Hedging for External Commercial Borrowings

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