This circular, RBI/2021-22/135 A.P. (DIR Series) Circular No. 19, issued by the Reserve Bank of India on December 08, 2021, addresses policy changes regarding External Commercial Borrowings (ECB) and Trade Credits (TC) due to the impending discontinuation of LIBOR. The circular amends Master Direction No. 5 dated March 26, 2019, concerning benchmark rates and the maximum spread for calculating the all-in-cost for foreign currency (FCY) ECBs and TCs.
Key changes include:
* **Redefinition of Benchmark Rate:** The benchmark rate for FCY ECBs/TCs is redefined to include any widely accepted interbank rate or alternative reference rate (ARR) of a 6-month tenor applicable to the borrowing currency, replacing the previous 6-month LIBOR or equivalent.
* **Revised All-in-Cost Ceiling for New ECBs/TCs:** The all-in-cost ceiling for new FCY ECBs and TCs has been increased by 50 basis points to 500 bps and 300 bps, respectively, over the benchmark rates (ARRs).
* **One-Time Adjustment for Existing ECBs/TCs:** A one-time upward revision of 100 basis points has been implemented, increasing the all-in-cost ceiling to 550 bps and 350 bps, respectively, over the ARR for existing ECBs/TCs linked to LIBOR transitioning to ARRs. This revision is solely for the transition from LIBOR to alternative benchmarks.
* **INR ECBs/TCs:** There is no change to the all-in-cost benchmark and ceiling for INR ECBs/TCs.
All other provisions of the ECB/TC policy remain unchanged. Authorised Dealer Category-I (AD Category-I) banks are directed to bring the contents of this circular to the notice of their constituents/customers. The circular is issued under Sections 10(4) and 11(2) of the Foreign Exchange Management Act, 1999 (42 of 1999).
For further information, contact Ajay Kumar Misra, Chief General Manager-in-Charge.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the country's monetary policy and financial system. It issued the circular being analyzed.
External Commercial Borrowings (ECB): Commercial loans raised by eligible resident entities from recognized non-resident entities.
Trade Credits (TC): Credits extended for imports into India.
LIBOR: London Interbank Offered Rate, a benchmark interest rate that is being discontinued.
EURIBOR: Euro Interbank Offered Rate, a benchmark interest rate.
Foreign Exchange Management Act, 1999: An Act of the Parliament of India to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.
Master Direction No. 5 dated March 26, 2019: RBI's Master Direction on External Commercial Borrowings, Trade Credits and Structured Obligations.
Authorised Dealer Category-I (AD Category-I): Banks authorized by the Reserve Bank of India to deal in foreign exchange.
भारतीय �रज़व� ब�क
RESERVE B ANK OF INDIA
RBI/2021-22/135
A.P. (DIR Series) Circular No. 19
December 08, 2021
To
All Category-I Authorised Dealer Banks
Madam / Sir,
External Commercial Borrowings (ECB) and Trade Credits (TC) Policy – Changes
due to LIBOR transition
Please refer to paragraph 3 of the Governor’s Statement on Developmental and
Regulatory Policies dated December 08, 2021. In this connection, attention of Authorised
Dealer Category-I (AD Category-I) banks is invited to paragraph 1.5, 2.1.vi. and 14.vi. of
the of Master Direction No.5 dated March 26, 2019, on “External Commercial Borrowings,
Trade Credits and Structured Obligations”, prescribing the benchmark rates and the
maximum spread over benchmark for calculating the all-in-cost for foreign currency (FCY)
ECBs and TCs.
2. In view of the imminent discontinuance of LIBOR as a benchmark rate, it has been
decided, in consultation with stakeholders, to make the following changes to the all-in-
cost benchmark and ceiling for FCY ECBs/ TCs:
i. Redefining Benchmark Rate for FCY ECBs and TCs: Currently, the benchmark
rate is defined in paragraph 1.5 of the master direction as “benchmark rate in case
of FCY ECB/TC refers to 6-months LIBOR rate of different currencies or any other
6-month interbank interest rate applicable to the currency of borrowing, e.g.,
EURIBOR”. Henceforth, benchmark rate in case of FCY ECB/TC shall refer to any
widely accepted interbank rate or alternative reference rate (ARR) of 6-month
tenor, applicable to the currency of borrowing.ii. Change in all-in-cost ceiling for new ECBs/ TCs: To take into account
differences in credit risk and term premia between LIBOR and the ARRs, the all-
in-cost ceiling for new FCY ECBs and TCs has been increased by 50 bps to 500
bps and 300 bps, respectively, over the benchmark rates.
iii. One Time Adjustment in all-in-cost ceiling for existing ECBs/ TCs: To enable
smooth transition of existing ECBs/ TCs linked to LIBOR whose benchmarks are
changed to ARRs, the all-in cost ceiling for such ECBs/ TCs has been revised
upwards by 100 basis points to 550 bps and 350 bps, respectively, over the ARR.
AD Category-I banks must ensure that any such revision in ceiling is only on
account of transition from LIBOR to alternative benchmarks.
3. There is no change in the all-in-cost benchmark and ceiling for INR ECBs/ TCs.
4. All other provisions of the ECB/ TC policy remain unchanged. AD Category-I banks
should bring the contents of this circular to the notice of their constituents/ customers.
5. The Master Direction No. 5 dated March 26, 2019, is being updated to reflect the
changes.
6. The directions contained in this circular have been issued under section 10(4) and
11(2) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without
prejudice to permissions/ approvals, if any, required under any other law.
Yours faithfully
Ajay Kumar Misra
Chief General Manager-in-Charge