By Vipin V. Nair Oct. 22 (Bloomberg) -- India eased overseas borrowing rules for domestic companies, lifting curbs it had imposed last year, to spur capital inflows as the local currency slumped to an all- time low today. Companies can borrow up to $500 million in a financial year without prior approval and can repatriate the funds as long as they don't invest the money in capital markets or real estate, the Reserve Bank of India said in a statement on its website. It also raised the cap on borrowing costs enabling companies to access funds. Last year, the government had told companies they couldn't repatriate more than $20 million. Policy makers are stepping up measures to prevent a looming global recession from crimping India's economic growth. Asia's third-biggest economy faces a ``temporary slowdown'' this year, Prime Minister Manmohan Singh told lawmakers on Oct. 20 as the central bank slashed its benchmark interest rate for the first time in four years. The move may also be aimed at halting the slide in the rupee, which is the worst performer among the 11 most-active Asian currencies after South Korea's won this year. ``With the credit-market situation overseas, an iceberg has to melt somewhere for the water to flow in here when they open the gates,'' said Paresh Nayar, chief currency and bond trader at Development Credit Bank Ltd. in Mumbai. ``Funding has become difficult, and it is hard to say if this measure will help the rupee halt its losses.'' Immediate Effect The changes in the overseas borrowing rules will come into force with immediate effect, the Reserve Bank said. The government had restricted such loans in August 2007 to stem gains in the rupee that rallied to the highest level in almost a decade in November 2007. The central bank also raised the ceiling on interest rates that the companies were allowed to pay for their overseas loans. For loans with three to five years maturity, companies can now pay 300 basis points over the six month London interbank offered rate, or Libor, higher than an earlier limit of 200 basis points above Libor. For loans more than seven years, they can now pay 500 basis points above six-month Libor, the RBI said. The central bank said mobile phone operators can borrow overseas to pay for the so-called third generation, or 3G, radio spectrum. Dollar Liquidity India is trying to increase capital inflows after overseas funds sold a record $12 billion of local shares this year. Foreign-exchange reserves have dwindled by $42 billion to $274 billion as on Oct. 10, from a record $316 billion in May, on speculation the central bank sold dollars to curb the rupee's decline. The central bank, starting Oct. 11, has added 1 trillion rupees ($20.3 billion) to the local banking system by telling lenders to keep a smaller proportion of their deposits as reserves to ease a credit crunch. The rupee dropped as much as 0.8 percent to 49.50 a dollar today, an all-time low, before closing at 49.285 in Mumbai, according to data compiled by Bloomberg. The currency, down 20 percent this year, is headed for the worst year since 1991. To contact the reporter on this story: Vipin V. Nair in Mumbai at Vnair12@bloomberg.net.

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