In a bid to arrest the rupee slide and attract more capital inflows, the Reserve Bank of India (RBI) on Monday relaxed the External Commercial Borrowing (ECB) norms, increased the overall cap of foreign investment into government securities (G-Sec) and permitted more categories of long-term institutional inves-tors to invest in such securities.

However, market participants said that the slew of measures announced by RBI is unlikely to have any major impact on the rupee in the near-term.

The new norms allow companies in the manufacturing and infrastructure sector to borrow more from overseas to pay back their outstanding domestic loans, which were borrowed at a higher cost.

“Indian companies in manufacturing and infrastructure sector having foreign exchange earnings can now access ECB for repayment of their outstanding rupee loans towards capital expenditure and fresh rupee capital expenditure under the approval route,” RBI said. The overall ceiling for such ECBs has been capped at $10 billion.

The existing limit for investment in G-Sec by the Foreign Institutional Investors (FII) registered with the Securities and Exchange Board of India (Sebi) has been increased by $5 billion. This would raise the limit for FII investment in G-Secs from $15 billion to $20 billion.

To increase the participation of overseas investors in G-Sec, the central bank allowed long-term investors like Sovereign Wealth Funds (SWFs), multilateral agencies, endowment funds, insurance funds, pension funds and foreign central banks buy such securities.

Additionally, the RBI also permitted Qualified Foreign Investors (QFI) to invest in those mutual funds scheme that hold at least 25 per cent of their assets (either in debt or equity or both) in infrastructure sector under the current $3 billion sub limit for investment in mutual fund related to infrastructure.

“The $10 billion limit is less. It should have been at about $50 billion. I doubt whether these measures are good enough to make a major impact on rupee,” Jamal Mecklai, CEO, Mecklai Financial Services said.

“The steps announced are probably minimal at this time but could lead to some inward capital flows if it is supported by stronger fundamentals. We were however hoping for a broad based set of strong actions as well as policy reforms that could have a positive bearing on the environment,” R. V. Kanoria, president, FICCI, said.

RBI rhetoric fails to cheer market, rupee

The measures announced by the Reserve Bank of India (RBI) on Monday to shore up the rupee failed to enthuse the market participants as both the equity markets and the local currency gave away most of their intra-day gains.

The rupee, which is one of the worst performing currencies in Asia rallied higher by 74 paise to hit 56.37 to the dollar in the intra-day trade expecting a major boost from the RBI and the government.

However, rupee reversed its gains by 64 paise to close at 57.01 to dollar as the measures announced by the RBI fell below market expectation.

Similar sentiments was also witnessed in the equity market with the Sensex sliding 249 points or 1.45 per cent from its days high to close at 16,882.16, down 90.35 points from its previous close. The Nifty closed at 5,114.65, down 0.61 per cent or 31.40 points.

“The RBI disappointed the market as they were expecting major measures like an increase in interest rate for NRI deposit, allowing FDI in some key sectors and issue of millennium bonds among others,” Abhishek Goenka, chief executive officer, India Forex Advisors said.