Facing huge redemption pressure on funds raised via foreign currency convertible bonds (FCCBs), India Inc has requested the Reserve Bank of India (RBI) to allow companies to offer higher interest rates on fresh foreign currency loans or bonds, the proceeds of which will be used to pre-pay existing FCCBs.
"Many of us don't want to leave it till the last moment, as the situation may get out of hand. We plan things in advance, depending on the market conditions. Hence, pre-payment is often necessary. We have requested the RBI to relax the rules on lower cost. Our understanding is the RBI is taking a benign view on this request," said a person familiar with the developments. He requested anonymity due to the sensitivity of the issue.
Industry players said in the past the banking regulator had allowed such waivers on a case-to-case basis. "Our view is the RBI should not hide behind the guidelines. The regulator must give the leeway, considering the current market conditions. Unless a higher rate is offered, no new investor will be willing to put in money," said a senior executive of a private bank.
The regulator had recently allowed companies to raise funds through external commercial borrowings (ECBs) to refinance an existing ECB at a higher cost under the approval route.
On the refinancing of existing FCCBs via external commercial borrowings, companies have asked the central bank
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