Changes In Pricing Of ECBs And TCs In Light Of The LIBOR Transition

The Reserve Bank of India (“RBI”) has, vide its notification titled ‘External Commercial Borrowings (ECB) and Trade Credits (TC) Policy – Changes due to LIBOR transition' dated 8^th December 2021, made the following changes to the all-in-cost (“AIC”) benchmark and ceiling for foreign currency denominated (“FCY”) external commercial borrowings (“ECBs”) and trade credits (“TCs”):

1) Redefining ‘Benchmark Rate' - The definition of ‘Benchmark Rate' in case of FCY ECBs and TCs has been redefined to “any widely accepted interbank rate or alternative reference rate (ARR) of 6-month tenor, applicable to the currency of borrowing”.

2) Change in AIC for new contracts - To take into account differences in credit risk and term premia between LIBOR and the ARRs, the AIC ceiling for new FCY ECBs and TCs has been increased by 50 basis points (“bps”) to 500 bps and 300 bps, respectively, over the benchmark rates.