Reserve Bank of India today decided to allow External Commercial Borrowings, ECB, for working capital as a permissible end-use for the civil aviation sector on certain conditions. The notification issued by RBI in Mumbai stated that the overall ECB ceiling for the entire civil aviation sector would be one billion US Dollars and the maximum permissible ECB that can be availed by an individual airline company will be 300 million US Dollars. This limit can be utilized for working capital as well as refinancing of the outstanding working capital Rupee loans availed of from the domestic banking system. Airline companies desirous of availing of such ECBs for refinancing their working capital Rupee loans may submit the necessary certification from the domestic lenders regarding the outstanding Rupee loans. The notification also stated that the ECB for working capital should be raised within 12 months from today.
RELATED NOTIFICATION FROM RBI IS AS FOLLOWS;-
A. P. (DIR Series) Circular No. 113
April 24, 2012
All Category-I Authorised Dealer Banks
Madam / Sir,
External Commercial Borrowings (ECB) for Civil Aviation Sector
Attention of Authorized Dealer Category-I (AD Category-I) banks is invited to the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000, notified vide Notification No. FEMA 3/2000-RB dated May 3, 2000 and A.P. (DIR Series) Circular No. 5 dated August 1, 2005, as amended from time to time, relating to External Commercial Borrowings.
2. As per the extant guidelines, availing of ECB for working capital is not a permissible end-use. On a review of the policy related to ECB and keeping in view the announcement made in the Union Budget for the Year 2012-13, it has been decided to allow ECB for working capital as a permissible end-use for the civil aviation sector, under the approval route, subject to the following conditions:
3. ECB availed for working capital/refinancing of working capital as above will not be allowed to be rolled over.
4. The application for such ECB should be accompanied by a certificate from a chartered accountant confirming the requirement of the working capital loan and the projected foreign exchange cash flows/earnings which would be used for servicing the loan. Authorised Dealer should ensure that the foreign exchange for repayment of ECB is not accessed from Indian markets and the liability is extinguished only out of the foreign exchange earnings of the borrowing company.
5. The modifications to the ECB policy will come into force from the date of this circular. All other aspects of the ECB policy shall remain unchanged.
6. AD Category – I banks may bring the contents of this circular to the notice of their constituents and customers concerned.
7. The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.
Chief General Manager