Monday, October 13, 2008

ECB Norms Should Be Eased

hmmm.. thenewgrotius believes another 50 basis point rate cut is in order so far as the CRR is concerned...Anywayz, given that we are still on course for a 7% growth this fiscal, and given that there are little concerns for the real sector as such, think its high time that the RBI and the Finmin take tweaking the ECB " All in cost" seriously. At present, the " All in cost" ceilings are pegged at too low a level to make the ECB window meaningful for Corporates;
The ECB all in cost for a borrowing with a Average maturity of 3-5 years is pegged at 200 basis points above the six month LIBOR. And the same for the Average maturity bracket of 5 year onwards is pegged at 350 basis points above the Six month LIBOR. As we know the ECB end-use includes acquisitions overseas. With recession looming in US, Inorganic growth options have opened up for EM Corporates. But Given the global liquidity crunch, Borrowings have become dearer with the result that it is difficult to peg the "All in Cost" (which besides the Coupon payable, includes all that is foreign exchange expenditure including fees to keep the Credit lines open and other fees payable in foreign exchange).
What that means is opportunities of inorganic growth westwards are denied in times when valuations are dirt cheap! It is time to increase the "All in cost" to make it in sync with the global realities and facilitate domestic expansion and overseas acquisitions...

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