ECB – Change in the Definition of Benchmark Rate & All-in-Cost Ceiling
The RBI Notification dated 8th December 2021:
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Circular date |
08.12.2021 |
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Subject |
External Commercial Borrowings (ECB) – Changes due to LIBOR transition |
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Effective date |
08.12.2021 |
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Applicability |
All entities availing ECB and Trade Credits. |
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Brief description |
In view of the imminent discontinuance of LIBOR as a benchmark rate, following changes have been made by Reserve Bank of India (RBI) in ECB provisions: Definition of Benchmarking: Previously, the benchmark rate was defined 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. All-in-cost ceiling for new ECB: Increased by 50 bps i.e. Benchmark rate plus 500 bps spread. All-in-cost ceiling for existing ECB linked to LIBOR whose benchmarks are changed to ARR: Increased by 100 bps i.e. Benchmark rate plus 550 bps spread. All-in-cost ceiling for new Trade Credit: Increased by 50 bps i.e. Benchmark rate plus 300 bps spread. All-in-cost ceiling for existing Trade Credit linked to LIBOR whose benchmarks are changed to ARR: Increased by 100 bps i.e. Benchmark rate plus 350 bps spread. There is no change in the all-in-cost benchmark and ceiling for INR ECBs/ TCs |