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RBI relaxes capital control norms

Mumbai, Sep 4 (): RBI today partially rolled back some of the conditions imposed in August on capital investment abroad from residents. Indian companies can now invest abroad if the funds are raised through external commercial borrowings (ECB). In yet another clarification of the overseas direct investment order it allowed companies to use ECB for general corporate purpose. Today saw RBI intervened strongly in the foreign exchange market to stem the rupee fall.

The earlier RBI order which India Inc termed as capital controls has relaxed the stringent conditions. It had reduced the limit to 100 % of the net worth of a company for investment abroad. It has now increased it 400% of the net worth of they are raising ECBs. Those who made commitments abroad directly before August 14 would not come under the new rule.

These moves are to raise funds from foreign partners. The norms were relaxed for exporters who used their foreign exchange account or through GDR( global depository receipts) or through American receipts.

It said that the ECB raised from their equity partner abroad should have a 7 year minimum maturity period and the lender should hold 25% equity in the company. These ECB so raised cannot be foreclosed before the maturity period. RBI had not allowed ECB funds to be used for corporate purposes. Only after the 7 year maturity lock in period can repayment of the principal amount will start and till then no prepayment will be permitted. India Inc had been awaiting this announcement from the new Governor.

Lack of capital inflows had yesterday caused the decline in stock markets losing 651 points in the closing. The ECB route saw business raising $ 3.71 billion in July and in June it was $ 1.95 billion. This amount includes FCCB (foreign currency convertible bonds) too. The capital inflows from foreign investors is the route to stabilize the rupee.