Indian Government has decided to disallow the cheaper External Commercial Borrowings from China in terms of Yuan credit for power plants to protect the domestic power equipment manufacturers market.
External Commercial Borrowings (ECB) refers to commercial loans from overseas lenders. It can be in the form of bank loans, buyers’ credit, suppliers’ credit or securitized instruments (e.g. floating rate notes and fixed rate bonds, non-convertible, optionally convertible or partially convertible preference shares). The minimum average maturity of such loans is three years. ECB is usually considered cheaper compared with domestic loans.
Currently, Indian companies are allowed to raise such loans up to a limit of $1 billion.
Earlier, to mitigate the high power shortage in the country, the decision was taken to allow ECB in Chinese Currency to facilitate imports of power equipment's such as Boiler, Turbine, Generated and related accessories.
However, post that the share of Chinese Equipment's in the domestic market has been raised to as high as 50% and according to the Reserve Bank of India availability of long-term, low interest export credit from China will further distort the status in favor of Chinese manufacturers adversely affecting the domestic manufacturers.
Meanwhile, domestic companies got some relief last year, when import duty was raised on imported equipment for power projects.
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Reserve Bank of India, has decided to allow the loans to the new Ultra Mega Power Projects (UMPPs) to be considered as secured debt even though the land and other plant assets will be owned by Distribution Utilities not the wining bidder.