The Centre is planning a large-scale review of the policy on external commercial borrowings soon to frame guidelines for loans above $100 million.

Besides, the Reserve Bank of India might be asked to scrutinise at random ECB proposals up to $100 million under the automatic route.

Government sources said the review had been prompted by complaints from several corporates that their applications had been put on hold or turned down without assigning any reason. They said the ministry should adopt clearly defined rejection criteria.

The government last year decided to encourage companies to access the domestic market before seeking foreign loans, especially for amounts in excess of $100 million, which require a clearance by the finance ministry. Accordingly, the government has cleared very few proposals in the past year.

But companies feel that given the widening interest rate differential, the ministry should be more liberal, particularly as the country's foreign exchange reserves are fairly robust.

The sources said the issue would be the key point of discussion in the next meeting of a committee on ECBs headed by Reserve Bank of India Governor Bimal Jalan.

The committee includes the finance secretary and the Sebi and IRDA chairmen. The finance ministry wants a clearance from the committee before it opens the window further.

The committee will also deliberate on the misuse of the automatic approval route, under which proposals up to $50 million are approved automatically, while those up to $100 million are cleared by the RBI.

While the ECB policy says only corporate bodies can raise such loans through banks, from recognised lenders abroad, there is a fear that the smaller proposals are not being scrutinised.

The finance ministry has advised the central bank to scrutinise a few cases to spread the word that the government is serious about both the sourcing and the end use of foreign funds.

The sources said scrutiny of some of the applications for raising foreign loans showed that they were meant to bring in funds owned by companies abroad.

After the last stocks scam, where some overseas corporate bodies were found to have misused the banking routes to send funds abroad, the finance ministry wants to avoid any sourcing of funds from tax havens.

Over the past couple of years, the ministry and the RBI have relaxed most of the restrictions on ECBs, including end use, except for investment in the stock market and real estate.