Government on Monday relaxed the norms for overseas borrowing by allowing infrastructure companies to bring in $500 million raised abroad for rupee expenditure against the present limit of $100 million.

"Considering the huge funding requirements, particularly for meeting rupee expenditure, it has been decided to enhance the existing limit of $100 million to $500 million for borrowers in the infrastructure sector under the approval route," an official statement said.

However, borrowings in excess of $100 million should have a minimum average maturity of seven years, it added.

The finance ministry also decided to allow corporates to pay higher interest rates on borrowing funds with a maturity of over seven years, in view of widening credit-spreads in the international financial markets.

Under the new norms, corporates can pay up to 4.5 per cent over six-month London Inter Bank Offered Rate (LIBOR), against earlier ceiling of 3.5 per cent.

The government had last year imposed curbs on external commercial borrowings following rupee appreciating enormously.

It prohibited companies from bringing in over $20 million into India for rupee capital expenditure. Even for that companies had to seek RBI's approval.

On persistent demand from corporates, the government in May had allowed infrastructure companies to bring in $100 million for rupee expenditure, while it raised the limit for other companies to $50 million.

For all companies other than infrastructure, the limit imposed in May for rupee expenditure will continue.

All other aspects of ECB policy, like $500 million limit per company per year under the automatic route, remains unchanged, the statement said.

The changes in the ECB guidelines will come into effect after notification by the Reserve Bank of India [Get Quote].

Earlier in the day, economic affairs secretary had hinted that the government will ease the ECB norms.

"We need to do something not only in terms of external commercial borrowings but even in other aspects. . . So far as the situation in terms of access to funds, in terms of liquidity and capital market is concerned, those steps will be taken," Chawla had said.

Finance Minister P Chidambaram also last week, said "I have heard a number of people make out a case (for relaxing
ECBs)." 

Finance ministry sources said while there was a case for easing ECB norms, it cannot be related to the value of rupee, but with the borrowing needs of corporates.

• ECB rules to be eased soon