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JC - Legal Updates - Changes in pricing of ECBs and TCs in light of the LIBOR transition

Legal Updates

08 Dec 2021

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 8th 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.

3)   One Time Adjustment in AIC ceiling for legacy contracts - To enable smooth transition of existing ECBs and TCs linked to LIBOR, the AIC ceiling for existing FCY ECBs and TCs has been increased by 100 bps to 550 bps and 350 bps, respectively, over the benchmark rates.

4)   AIC for INR ECBs / TCs remains unchanged - There is no change in the AIC benchmark and ceiling for INR ECBs / TCs.

Reserve Bank of India - Notifications (rbi.org.in)

For any further information, please contact Mr. Ankit Sinha (ankit.sinha@jclex.com) or Mr. Saurabh Sharma (saurabh.sharma@jclex.com).