Economics • Banking & FinanceMedium
What is the primary purpose of 'External Commercial Borrowings (ECB)' guidelines regulated by the Reserve Bank of India?
A. To enable resident entities to raise foreign currency funds from recognized non-resident lenders under prescribed maturity and cost limits.✓ Correct Answer
B. To allow domestic commercial banks to borrow directly from foreign central banks during liquidity crunches.
C. To regulate foreign direct investment in retail and e-commerce sectors.
D. To manage foreign exchange reserves through sovereign debt issuances.
💡 Solution & Explanation
External Commercial Borrowings guidelines govern the terms under which eligible resident corporate entities can source foreign currency loans from international lenders. Other choices mentioning direct loans between central banks or foreign direct investment regulation pertain to entirely separate domains of central banking policy. These frameworks are stringently monitored by the Reserve Bank of India to maintain external debt sustainability and overall macroeconomic stability. Keeping external debt within prudent limits helps cushion the economy against severe exchange rate volatility.
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