The Indian Government tried to improve their economic crisis in global. Its likely to beam the interest Rate on External Commercial Borrowings (ECBs) by India Inc. In this economic crisis companies can hit the ECB Windows only if they will able to raise funds at an interest rate less than LIBOR (London Inter Bank Offer Rate where banks borrow from each other in the London Wholesale Money Market and is a reference for many financial institutions) plus 500 basic points for maturities beyond five years.
Finance Ministry Officials submitted the proposal of interest rate ceiling to the Prime Minister. Its imaginably for the first time where government and the Reserve Bank of India are considering with interest rate ceiling. While it already let out the borrowing bringe in the ECB Market in 2007-2008, but fiscal can't succeed for two reasons:, first it's dramatic condition in global market and another was domestic restrictions on such borrowings. Probably government will announces this New fiscal packages in the next few years.
Prime Minister Manmohan Singh met with the finance secretary and the Economic affairs secretary to firm up the slowing economy. The Officials said the sectors like Real Estate, Commercials vehicles, Housing finance companies and labour-Intensive export industries May get the benefit with this, However it is not clear if the package would include a rate cut by the Reserve Bank of India. Running with these cut rates will allow more corporates to access funds from the global Markets. It also shows the determination of factors including the company's financial performance. So only large financial performers get access to funds through this route.
According to the Investment Banking Anlyist, The purposal likely to eliminate the ceilings come after the RBI Relaxed ECB Norms in Oct, 2008 by increasing the interest rate by 100 basis points to LIBOR Plus 300 basis points on 3-5 years tenures borrowings. It had also likely to allow the companies to utilise the ECB Proceeds, further it will expand for a six month period, The current LIBOR with 1.75 per cent and with the stand of one- year Libor at 2 per cent and the firms goes with the lesser rates also access the funds through at higher rates.
An official pointed out that the rupee expected to dropped by almost 20 per cent in 2008 leaving scope for appreciation. They expect the advantage of this will be immense as currently way very few companies are likely to use this option for rasing the funds. It will also put pressure on Indian Banks which have been averse to lend during the last 3-4 months.
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