UPDATE 1-India raises overseas borrowing limit for some firms

(Adds details, central bank approval, analysts quotes)

By Rajkumar Ray

NEW DELHI, Sept 22 (Reuters) - India on Monday said it would allow local infrastructure companies to bring in more funds that had been borrowed overseas, a move which could see more capital come into the country and ease pressure on the rupee to weaken.

However, analysts said the global credit crunch meant the government's move to increase the limit on repatriated overseas borrowings to $500 million from $100 million for infrastructure companies was unlikely to spark an immediate rush of inflows.

The central bank approved the proposal on Monday evening, saying the measures would take effect immediately.

The rupee INR=IN hit a two-year low of 46.99 per dollar last week, according to Reuters data. It has recovered since then, helped by central bank intervention, closing at 45.45/46 on Monday.

"It will ease some funding needs of infrastructure companies and reduce their cost of borrowings as interest rates remain firm in India," said D.K Joshi, principal economist at domestic rating firm Crisil.

But he added it would be difficult for companies to raise funds from abroad easily.

"There is a credit squeeze globally."

The finance ministry said it raised the annual limit on borrowing for the companies in the infrastructure sector to $500 million from $100 million because of huge funding requirements, particularly for meeting rupee expenditure.

The ministry said the rules required borrowings in excess of $100 million to have a minimum average maturity of 7 years.

The interest rate spread, the rate above LIBOR at which infrastructure companies can borrow, was raised to 450 basis points from 350 basis points, the ministry said.

"From a psychological point of view, it is stronger for the rupee. With the world credit markets looking bad, I don't think this money is there for India," Harihar Krishnamoorthy, treasury head at Development Credit Bank said.

"Indian spreads have gone up and liquidity dried up. The results will show after the global stress wears off," he said.

The Reserve Bank of India (RBI) announced last week it would increase banks' access to funding to counter any liquidity problems after the upheaval on Wall Street. It also said it would sell dollars to augment supply in the foreign exchange market.

"We need to attract more capital. India runs minimal risk of a surge in inflows in the near term," said Shubhada Rao, an economist with Yes Bank.

"The rupee has depreciated significantly in the past few weeks and these measures will help in some upward correction." (Additional reporting by Anurag Joshi in MUMBAI) (Editing by John Mair)