Even as the government is ready with the broad contours of an auction mechanism for external commercial borrowings, the Reserve Bank of India has stuck to its guns and is opposing the new mechanism.
The central bank's principal argument is that the move would hit small players who are looking to lower their borrowing cost by tapping overseas funds.
Besides, RBI officials said, the present system was working fine, so there was no need to change it.
Government officials said the system proposed by the finance ministry, which would be akin to the mechanism followed for auction of investment rights in bonds, would result in Mint Road losing control over overseas fund raising by companies and that was RBI's major concern.
A system of auctions was first proposed by the government last year, but opposed by RBI. Officials said the concerns had come from the level of deputy governor and the government tried to explain the rationale for the new position.
It has still not found favour with the central bank, which has written to the finance ministry, voicing its concerns on the issue.
The ECB policy is decided by a high-level committee comprising officials from the finance ministry and RBI.
After a slowdown in accessing overseas funds due to the financial crisis, Indian companies are back to raising debt through the ECB window, prompting the government and RBI to even raise the annual ceiling to $40 billion this year. As a result, the scheme for fund-raising is once again under review, as there are demands to open the window further.
During the first four months of 2010, Indian companies raised $10.16 billion through the ECB route, compared with $3.19 billion in the corresponding period last year.
Telecom companies, which have got rights over spectrum or radio frequency to offer third-generation mobile telephone services, are expected to be large borrowers and will queue at the ECB window.
Together, these companies have paid Rs 68,000 crore (Rs 680 billion), while another Rs 38,000 crore (Rs 380 billion) has been paid for broadband wireless access spectrum.
The payment has been made through domestic borrowings and are likely to be substituted by funds raised overseas over the next few months to lower the cost of debt.