EXTERNAL COMMERCIAL BORROWINGS;

External Commercial Borrowings (ECBs) are loan made by non-resident lenders in convertible foreign exchange to the Indian borrowers. ECBs are the instruments through which loans are availed by India borrowers from foreign sources.

ECBs include bank loans, buyer’s credit, supplier’s credit, securitised instruments, such as floating rate notes, fixed rate bonds, etc.

Indian corporates are permitted to use ECB either for fresh investments or capacity expansion. The funding raised can’t be used for the following purpose:

  • Real estate activities
  • Investment in capital market
  • Equity investment.
  • Working capital purposes except from foreign equity holder.
  • General corporate purposes except from foreign equity holder.
  • Repayment of Rupee loans except from foreign equity holder
  • On-lending to entities for the above activities.

External Commercial Borrowings can be availed through;

  • Automatic Route- Through Authorised Dealers, AD Category -I banks;
  • Approval Route- Perspective borrower should send its proposal for ECB to RBI through AD-Category-I bank for examination.

The Foreign Exchange Management Act, 1999 and Guidelines issued by RBI govern the provisions of External Commercial Borrowings.

Let’s us consider reporting aspects of External Commercial Borrowings;

CHECK LIST FOR REPORTING OF EXTERNAL COMMERCIAL BORROWINGS

Particulars Name of the Form Documents to be submitted to whom Period in which to be reported Remarks
For Allotment of Loan Registration Number (both under Automatic as well as Approval Rout). Form 83(in duplicate certified by Company Secretary or Chartered Accountant) Loan Agreement is not required to be submitted. Designated AD Bank. Loan amount cannot be drawn till the time LRN is obtained. Borrower may enter into loan agreement complying with the ECB guidelines with recognised lender for raising ECB under Automatic Rout without prior approval of RBI. The Borrower must obtain LRN from the RBI before drawing the ECB.
Monthly Return regarding use of ECBs. Form ECB 2 along with Certificate of CA. Designated AD Bank to the Department of Statistical Analysis and Computer Services (DESACS), Balance of payments Statistics Division, RBI. Within a period of 7 days from the close of the month to which it relates.  
Application for ECB under Approval Route. Form ECB Designated AD bank to the Chief General Manager-in-Charge, Foreign Exchange Department, RBI, Central Office ECBs Division, Mumbai.    
Conversion of ECBs into Equity -In case of Full Conversion. FC GPR Regional Office of RBI.  

 

 

 

 

 

 

 

 

Within a period of 7 days from the close of the month to which it relates.

In case of full conversion of ECBs into Equity the word “ECB Wholly Converted to Equity” should be clearly indicated at the top of the Form ECB-2
Conversion of ECBs into Equity-In case of Partial Conversion. FC GPR for conversion of shares and for the remaining of ECB Form ECB-2. The DSIM, RBI In case of full conversion of ECBs into Equity the word “ECB Partially Converted to Equity” should be clearly indicated at the top of the Form ECB-2.

 

 

 

 

Changes/Modifications in the Drawdown/repayment schedule.  

 

 

 

Form 83

 

 

Through designated AD bank to the DSIM, RBI.

 

 

Prior Approval of AD Bank.

Average maturity period, as declared while obtaining the LRN, is maintained.
Changes in Currency of Borrowing. Subject to condition that the proposed currency of borrowing is freely convertible.
Change of the AD bank. Subject to No Objection Certificate (NOC) from the existing AD Designated Bank.
Changes in the name of Borrower Company.       Subject to production of supporting documents evidencing the change in the name from the ROC.
Change in the recognised lender.       Subject to the Authorised Dealer ensuring that the new lender is a recognised lender as per ECB norms.
Cancellation of Loan Registration Number (LRN)       Subject to ensuring that Drawdown for the said LRN has been taken place.
Change in End Use of ECB proceeds.       Subject to ensuring that the proposed End-Use is permissible under the Automatic Route as per ECB extant Guidelines.
Reduction in the amount of ECB.       The consent of the lender for reduction in loan amount has been obtained.
Reduction in the all-in cost of ECB.       Subject to ensuring that the consent of the Lender has been obtained.

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