Mumbai: The Reserve Bank of India (RBI) on Friday said Indian companies will not be permitted to refinance their rupee loans in the domestic market by raising funds through external commercial borrowings (ECBs), in a bid to curb the so-called evergreening of loans.

Evergreening refers to the practice of companies taking a fresh loan to pay up an old loan. The apex bank first began acting on evergreening of loans on 22 April, when it barred banks from issuing guarantees to overseas units of Indian companies for purposes not connected with their business.

On Friday, RBI said such refinancing cannot be done in respect of take-out financing, repayment of existing rupee loans in infrastructure sector and spectrum allocation.

“It has been decided that eligible Indian companies will not be permitted to raise ECB from overseas branches/subsidiaries of Indian banks for the purpose of refinance/repayment of the Rupee loans raised from the domestic banking system," RBI said.

In a separate notification, the RBI permitted banks to allow re-scheduling of ECBs as a one-time facility. But, while doing so, banks cannot effect any increase in the rate of interest and any additional cost, RBI said.

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