The Reserve Bank of India (RBI) on Tuesday said it would allow start-ups to access foreign currency loans of up to $3 million a year under the external commercial borrowing (ECB) route, in a statement separate from the monetary policy review.
Start-ups can raise up to $3 million either in rupees or in any convertible foreign currency or a combination of both, said the statement.
In February, RBI allowed start-ups to raise rupee loans through the ECB route. It had also said that it would facilitate the issuance of innovative instruments such as convertible notes by start-ups to make it easier for them to attract foreign direct investment.
“Start-ups have the potential to play a significant role in economic growth and job creation by spurring innovation and injecting competition,” said the statement. It added that guidelines will be issued by the end of this month.
Borrowing in foreign currency will cut down the cost of conversion for the start-ups.
“The avenues for start-ups will expand as it will help to ease out on liquidity part. It will be very beneficial for those who make payments in dollars, though they need to have necessary backup support to comply with the guidelines,” said Anil Joshi, managing partner, Unicorn India Ventures.
RBI’s move is in line with the government’s push to early-stage companies through its Start-up India campaign. Earlier this year, the government introduced incentives for early-stage companies, including an income tax holiday, an inspector-raj-free regime and capital gains tax exemptions on investments in start-ups. It also launched a Rs10,000 crore corpus to provide funding for these firms.
Separately, in July, the capital markets regulator, the Securities and Exchange Board of India, introduced easier regulations for start-ups that want to raise funds from the equity markets.
According to News Corp VCCEdge, the financial research arm of News Corp VCCircle, start-ups witnessed 945 private equity deals worth $8.8 billion in the nine months ending September 2016, down 47.3% year-on-year.