NRI Real Estate and Property Investment in India
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Ban on ECBs by Indian Real Estate Companies may be Withdrawn
Friday, June 08, 2007

The Reserve Bank of India (RBI)ís ban on External Commercial Borrowings (ECBs) may be revoked once its inflation control efforts begin to show results. The RBI is following a wait and watch policy on inflation levels and interest rates, and the mid-term review in July could possibly see a reversal of the ban on ECBs.

Before the ban, real estate companies were permitted to raise funds through ECBs provided the funds were used for integrated townships at least 100 acres in size.

Based on the data on ECBs which would be available only by the end of next month, a decision to allow external borrowings by real estate companies would be taken.

The Government had hastened to restrict borrowings following the surge in ECB inflows, crossing USD 9 billion between April and December, 2006.

The free flow of capital triggers inflation, and the surging rupee does not help matters for the RBI.

A temporary restriction on forex inflows was therefore necessary to keep a check on money supply into the market Inflation finally dipped to 5.06% on May 19, after an almost 9 month run of over 6%.A further fall in inflation to below 5% levels, maintained over a period of 4 to 5 weeks would ease money supply management for the RBI, and fresh ECBs could be considered.

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» Curbs in FDI in Indian Real Estate

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