In a bid to give a further impetus to the growing start-up ecosystem in the country, the RBI has allowed them to raise up to $3 million a year through external commercial borrowings (ECBs).
In his first Monetary Policy speech, RBI Governor Urjit Patel said: “Start-ups have the potential to play a significant role in the economic development of the country and creation of jobs by spurring innovation and injecting competition.”
However, the RBI will be issuing further guidelines in this regard by the end of this month.
The central bank has allowed start-ups to raise ECB in rupees and foreign currencies. Till now, only large Indian corporations and public sector holdings were allowed to raise ECBs.
The Indian start-up ecosystem, which is the third-largest in the world, will benefit from this move at a time when thousands of them have shut shop due to unavailability of funds at the growth stage. This year almost 860 start-ups folded up and funding crunch was one important reason, according to a report by Tracxn.
Welcoming the RBI move, angel investor and serial entrepreneur Sanjay Mehta said the cost of funds borrowed via ECB at times is cheaper than domestic borrowings given the near-zero interest rates in the US and Europe.
“The benefit for the entrepreneur is that the low-cost international funds can improve the inflow of more money in start-ups as it does in other sectors,” he added.
Industry watchers also welcomed the move and said several start-ups that have raised debt in the domestic market can use the ECBs to repay loans as the interest rate for ECBs is far lower.