The Indian government Tuesday tightened the norms for companies to borrow from overseas to check the rise in rupee value against other currencies by managing the flow of foreign funds into the country, Press Trust of India (PTI) reported.

As per the changes, a company raising US$20 million of External Commercial Borrowings (ECBs) would have to seek prior permission of Reserve Bank of India (RBI) to remit such funds into India. The changes are with immediate effect, an official statement was quoted as saying.

"Henceforth, ECB (of) more than US$20 million per borrowing company would be permitted only for foreign currency expenditure for permissible end-uses of ECB," it said.

Accordingly, companies raising ECBs of more than US$20 million would have to park the proceeds overseas for use as foreign currency expenditure. This modification is applicable under both automatic and approval routes.

Abheek Barua, Chief Economist of HDFC Bank, was quoted by PTI as saying that the move would help the rupee to depreciate in the range of 40.50 to 40.70 against the dollar in medium term. "It would have long term implication on value of Rupee, which would go up to Rs.40-41," he said.

The rupee has risen to a nine-year high, appreciating nearly 14 percent against the US dollar since August 2006. This has been largely due to massive inflow of foreign funds as debt and equity.

The statement said a company raising ECB of up to US$20 million under automatic route in a year could not remit such funds. Borrowers proposing to avail ECB up to US$20 million for rupee expenditure would require prior approval of the RBI under the approval route.

"Such funds would continued to be parked overseas until actual requirement," the statement said.