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RBI allows external loans for 3G services

business Updated: Dec 10, 2009 22:26 IST
HT Correspondent

The Reserve Bank (RBI) has eased external commercial borrowing (ECB) norms for telecom companies bidding for spectrum to offer 3G (third generation) telecom services that will ease up broadband video, gaming and other high bandwidth applications on mobile handsets.

The auction of 3G spectrum is scheduled to take place for January 14.

In a notification late Wednesday night, RBI allowed telecom service providers to raise funds raised through ECB to pay licence fees for 3G spectrum to the government.

The ECB rule address a long pending demand of the industry. The government has fixed a reserve price of Rs 3,500 crore for each slot of 3G spectrum. The government is expecting to raise about Rs 35,000 crore by auctioning four spectrum slots.

State-run Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL) have already been allotted 3G spectrum. This means that the government is expecting about Rs 7,000 crore from each slot.

This is a huge amount for telecom companies. “It is easier to raise this kind of money overseas,” said Alok Tandon, promoter director of Sistema Shyam Teleservices Ltd (SSTL).

“Cellular operators association of India (COAI) welcomes the RBI guidelines which shall allow the service providers to utilise the ECB proceeds to pay towards the allocation of the 3G spectrum,” said T. R. Dua, director general of COAI. “This move will enable all service providers to place more competitive bids and shall facilitate funding for acquisition of 3G spectrum.”

The bank also re-imposed an all-inclusive interest ceiling for ECBs under the approval route of 300 basis points (three percentage points) above London inter-bank offered rate— the benchmark for global borrowings—for loans with a tenure of three to five years.

The all-inclusive ceiling for loans with a maturity of more than five years would be 500 basis points. Last year, RBI had done away with the ceiling to help companies tide over the global credit crunch.

Significantly, as first reported by HT, RBI has also decided to discontinue with the facility for buyback of foreign currency convertible bonds (FCCBs) by Indian companies with effect from January 1, 2010.