Corporate gets an alternative to IBC from RBI

RBI on Tuesday issued notification stating corporate borrowers can avail of ECB “for repayment of rupee loans availed domestically for capital expenditure in manufacturing and infrastructure sector and classified as SMA-2 or NPA, under any one-time settlement arrangement with lenders”.Corporates can raise long-term ECB loans for working capital, general purpose, and to repay domestic loans.

Banks or corporates can sell bad loans directly to ECB lenders abroad.

Loans raised will be part of one-time settlement with companies.

Loans with minimum average maturity of 7-10 years can be raised to repay domestic loans.

RBI was earlier opposed to raising ECBs to repay domestic loans, the move can raise India’s external liability significantly and build up risks.

Domestic ARCs to lose business, will be forced to merge.

Corporate Debtor or financial creditor now instead of heading for the Insolvency and Bankruptcy Code (IBC), can now easily get into a OTS scheme between themselves, funds for which have to be raised abroad by the defaulter, or the banks.

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