The Union Government has relaxed the norms for external commercial borrowing (ECB) in its recently announced second economic booster package. The move would allow the integrated townships to raise funds from the international market. Integrated townships includes housing, commercial premises, hotels, resorts and city and regional level urban infrastructures.

Interest rate cap on all new entrants has been removed besides maturity period limits, re-imposed in May 2007 by the Reserve Bank of India. All ceilings would be re-looked at in May 2009 by the government.

The relaxed norms would help the housing sector which is facing serious liquidity crunch amid global financial crisis. Now, developers can easily arrange funds from abroad at competitive rates to use in the domestic market. Service sector can also enjoy the relaxed ECB norms. Funds can be raised through automatic route for both the dollar and rupee expenditure by hotels, hospitals and software companies. FIIs investment limit in corporate debt has also been raised from $6 billion to $15 billion by the union government.

In another significant decision, Non-banking finance companies (NBFCs) are also allowed to raise funds through ECBs. Earlier, NBFC were bounded to avail the ECB for a minimum maturity period of five years in dollar terms but transaction is allowed in Rupee terms from now onward. Grasim Industries CFO, DD Rathi hailed the decision as availability of dollars funds is a major issue in the current scenario. Reliance Capital CEO, Sam Ghosh said that liquidity problem is a major cause of low lending volumes overseas and interest rate on foreign funds is not an issue. Large companies can easily avail foreign funds from the international markets at the prevailing interest rates.