In a probable move to stop Indian companies from borrowing from domestic banks and paying back the same by taking cheap foreign loans, the Reserve Bank of India cracked down on such a facility on Friday.
External Commercial Borrowing (ECB) loans are much cheaper than domestic loans and it is believed that some companies use the arbitrage available to their advantage.
The Reserve Bank said Indian companies will no longer be allowed to “raise External Commercial Borrowing loans from overseas branches or subsidiaries of Indian banks for the purpose of refinance/repayment of the rupee loans raised from the domestic banking system.”
This would include scheme for take-out financing, loans taken for buying spectrum, and repayment of rupee loans in the infrastructure segment.