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RBI eases borrowing norms for oil firms
Why in the news ?
- The central bank liberalised external commercial borrowings (ECB) policy to allow state-run oil marketing companies to raise external debt for working capital purposes.
- The move comes in light of the rupee's drop to a record low following rise in global crude oil prices.
More in the news
- The Reserve Bank of India will permit oil marketing firms to raise overseas funds with minimum average maturity period of 3 or 5 years under the automatic route.
- It lifted the individual borrowing limit set at $750 million under the ECB framework.
- In response to the RBI’s move, the Indian Oil Corporation said it would help the oil marketing companies (OMCs) in the long run.
- It also said that the move will make loans cheaper and would also give it flexibility to hedge prudently based on market conditions.
External Commercial Borrowings
- India has always promoted capital inflows as a part of the development policy.
- Lack of domestic capital and deficit in the current account compelled the government historically to go after foreign capital.
- In simple terms, foreign capital is money obtained from foreign countries to make investment domestically.
- External Commercial Borrowings is basically a loan availed by an Indian entity from a non-resident lender.
- Most of these loans are provided by foreign commercial banks and other institutions.
- The significance of ECBs their size in India’s balance of payment account.
- In the post reform period, ECBs have emerged a major form of foreign capital like FDI and FII.
Source
The Hindu, Indian Economy.