Signals from the Mint Street indicate that there could be some restrictions on external commercial borrowings (ECBs) by corporates. “The government and the RBI should not put brakes on growth. Companies with genuine investment plans should be allowed to raise funds from abroad. They can put curbs on companies which raise money without proper investment plans,” said Care Ratings executive director D R Dogra ruling out any hike in rates.

In fact, capital flows have been rising as never before, adding to the burgeoning foreign exchange reserves of $202 billion plus. Net capital flows to India have more than doubled to $27.34 billion during the period April-December 2006, thanks to a surge in external commercial borrowings and non-resident Indian (NRI) deposits. The RBI, however, was not absorbing dollars from the market, thereby allowing the rupee to rise.

Higher recourse to ECBs was enabled by lower spreads on external borrowings and rising financing requirements for capacity expansion domestically. Consider these figures. As much as $9.1 billion came through ECBs as against an outflow of $1.21 billion in the previous year. Owing to high interest rates, NRI deposits surged by nearly 188 per cent to $3.2 billion during the April-December period from $1.11 billion in the previous year.

According to a banker, the RBI is likely to tighten bank exposure to the real estate and capital market segments further. It had increased the provisioning norms for exposure to commercial realty, personal loans and credit cards three months ago. The finance minister has already asked the public sector banks to moderate credit flow to real estate and capital market.

... contd.