Rate cap on foreign borrowings may rise

CORPORATES planning to borrow overseas can look forward to some respite. The government is likely to revisit the interest rate ceiling for overseas borrowings, though relaxation of the overall cap is ruled out for now.
The review comes against the backdrop of interest rates rising globally, leading to representations from the industry for relaxation of the interest rate ceiling. “We have received several representations to revisit the interest spreads. We are looking into it,” a finance ministry official said. Commerce & industry minister Kamal Nath had also written to the prime minister, stressing the need to revisit the external commercial borrowings (ECB) policy.
It may be pointed out that the government had raised the interest rate ceiling on May 29, pegging it at the year-ago levels. The ceiling was revised to 200 basis points over 6-month Libor from the earlier 150 basis points for overseas borrowings by companies for maturities between 3-5 years. For maturities over 5 years, the ceiling has been hiked to 350 basis points over 6month Libor from 250 basis points.
The industry, which has been finding it difficult to raise money even after this revision, has submitted several representations to the government. Their contention is that interest rates have gone up globally, and small companies with not-so-large balance sheets are finding it hard to borrow within the prescribed spreads.