External Commercial Borrowings (ECB) are the borrowings taken by an eligible entity in India for commercial purpose from any recognized entity outside India. As funding by the companies through debt has been traditionally been a preferred mode of funding due to inherent advantages such as security creation, minimum guaranteed returns, and tax optimization for both the lender as well as the borrower. Therefore, funding through ECB route is gaining more prominence to bring investment or loan for new projects under permitted areas by the Reserve Bank of India (RBI).


ECBs are governed by RBI Master Direction- External Commercial Borrowings, Trade Credits and Structured Obligations, and Foreign Exchange Management Act, 1999 (FEMA). This article aims to help understand the ECB and its impact on the Indian Economy.


External Commercial Borrowings are commercial loans raised by eligible resident entities from recognised non-resident entities and should conform to parameters such as Minimum Average Maturity Period (MAMP), permitted and non-permitted end-uses, maximum All-In-Cost ceiling (AIC), etc.

Raise commercial loans

Recognised Lenders (Non-resident) lenders)

Eligible borrowers (Resident)

For permitted end use & as per prescribed Parameters (MAMP, AIC)

ECB Framework

The framework for raising loans through ECB (hereinafter referred to as the ECB Framework) comprises the following two options:

Sr. No Parameters Foreign Currency denominated ECB INR denominated ECB
1. Draw-down & Repayment Draw-down in INR or FCY & Repayment in FCY Draw-down in INR or FCY & Repayment inINR
2. Forms of ECB


  • Loans including bank loans;
  • floating/ fixed rate notes/ bonds/ debentures (other than fully and compulsorily convertible instruments);
  • Trade credits beyond 3 years;
  • Foreign Currency Convertible Bonds (FCCBs);
  • Foreign Currency Exchangeable Bonds (FCEBs); and
  • Financial Lease
  • Loans including bank loans; floating/ fixed rate notes/bonds/ debentures/ preference shares (other than fully and compulsorily convertible instruments);
  • Trade credits beyond 3 years;
  • Financial Lease; and
  • Plain vanilla Rupee denominated bonds issued overseas
3. Eligible borrowers




  • All entities eligible to receive FDI (Indian Co., LLP, NBFC, VCF)
  • Port Trusts
  • Units in SEZ
  • SIDBI; and
  • EXIM Bank of India
  • All entities eligible to raise FCY ECB; and
  • Registered entities engaged in micro-finance activities, viz., registered Not for Profit companies, registered societies/trusts/ cooperatives and Non-Government Organisations.
4. Recognised lenders


The lender should be resident of Financial Action Task Force (FATF) or International Organisation of Securities Commission’s (IOSCO) compliant country, including on transfer of ECB. However,

a) Multilateral Financial Institutions (Eg: IMF, World bank) and Regional Financial Institutions (Eg: Asian Development Bank, European Investment Bank) where India is a member country will also be considered as recognised lenders;

b) Individuals as lenders can only be permitted if they are foreign equity holders or for subscription to bonds/debentures listed abroad; and

c) Foreign branches / subsidiaries of Indian banks are permitted as recognised lenders only for FCY ECB (except FCCBs and FCEBs).

Foreign branches / subsidiaries of Indian banks, subject to applicable prudential norms, can participate as arrangers/underwriters/market-makers/traders for Rupee Denominated Bonds issued overseas. However, underwriting by foreign branches/subsidiaries of Indian banks for issuances by Indian banks will not be allowed.

5. Minimum Average Maturity Period (MAMP) a) MAMP for ECB will be 3 years.

b) Call and put options, if any, shall not be exercisable prior to completion of minimum average maturity.

c) However, for the specific categories mentioned below, the MAMP will be as prescribed therein:

Sr. No. Category MAMP
a. ECB raised by manufacturing companies up to USD 50 million or its equivalent per financial year. 1 year
b. ECB raised from foreign equity holder for working capital purposes, general corporate purposes or for repayment of Rupee loans 5 year
c. ECB raised for:

(i) working capital purposes or general corporate purposes

(ii) on-lending by NBFCs for working capital purposes or general corporate purposes

10 year
d. ECB raised for

(i) repayment of Rupee loans availed domestically for capital expenditure

(ii) on-lending by NBFCs for the same purpose

7 year
e. ECB raised for

(i) repayment of Rupee loans availed domestically for purposes other than capital expenditure

(ii) on-lending by NBFCs for the same purpose

10 year

for the categories mentioned at (b) to (e) above –

(i) ECB cannot be raised from foreign branches / subsidiaries of Indian banks

(ii) the prescribed MAMP will have to be strictly complied with under all circumstances.

6. All-in-cost ceiling per annum Other costs Benchmark rate plus 450 bps spread

Prepayment charge/ Penal interest, if any, for default or breach of covenants, should not be more than 2% over and above the contracted rate of interest on the outstanding principal amount and will be outside the all-in-cost ceiling.

7. End-uses (Negative list) The negative list, for which the ECB proceeds cannot be utilised, would include the following:

a) Real estate activities

b) Investment in capital market

c) Equity investment

d) Working capital purposes, except in case of ECB mentioned at 5(b) and 5(c) above.

e) General corporate purposes, except in case of ECB mentioned at 5(b) and 5(c) above.

f) Repayment of Rupee loans, except in case of ECB mentioned at 5(d) and 5(e) above.

g) On-lending to entities for the above activities, except in case of ECB raised by NBFCs as given at 5(c), 5(d) and 5(e) above.

8. Exchange rate Change of currency of FCY ECB into INR ECB

FCY ECB into INR ECB can be at the exchange rate prevailing on the date of the agreement for such change between the parties concerned or at an exchange rate, which is less than the rate prevailing on the date of the agreement, if consented to by the ECB lender.

For conversion to Rupee

The exchange rate shall be the rate prevailing on the date of settlement.

9 Hedging provision


The entities raising ECB are required to follow the guidelines for hedging issued, if any, by the concerned sectoral or prudential regulator in respect of foreign currency exposure.

Infrastructure space companies:

  • They shall have a Board approved risk management policy.
  • Further, such companies are required to mandatorily hedge 70% of their ECB exposure in case the average maturity of the ECB is less than 5 years.
  • The designated AD Category-I Bank shall verify that 70 per cent hedging requirement is complied with during the currency of the ECB and report the position to RBI through Form ECB 2.

The following operational aspects with respect to hedging should be ensured:

a) Coverage: The ECB borrower will be required to cover the principal as well as the coupon through financial hedges. The financial hedge for all exposures on account of ECB should start from the time of each such exposure (i.e. the day the liability is created in the books of the borrower).

b) Tenor and rollover: A minimum tenor of 1 year for the financial hedge would be required with periodic rollover, duly ensuring that the exposure on account of ECB is not unhedged at any point during the currency of the ECB.

c) Natural Hedge: Natural hedge, in lieu of financial hedge, will be considered only to the extent of offsetting projected cash flows / revenues in matching currency, net of all other projected outflows. For this purpose, an ECB may be considered naturally hedged if the offsetting exposure has the maturity/cash flow within the same accounting year.

  • Overseas investors are eligible to hedge their exposure in Rupee through permitted derivative products with AD Category I Banks in India.
  • The investors can also access the domestic market through branches / subsidiaries of Indian banks abroad or branches of foreign banks with Indian presence on a back to back basis.
10. Change of currency of borrowing


Change of currency of ECB from one freely convertible foreign currency to any other freely convertible foreign currency as well as to INR is freely permitted. Change of currency from INR to any freely convertible foreign currency is not permitted.

Limit and Leverage:

All eligible borrowers can raise ECB up to USD 750 million or equivalent per financial year under the automatic route. Further, in case of FCY denominated ECB raised from direct foreign equity holder, ECB liability-equity ratio for ECB raised under the automatic route cannot exceed 7:1.

Note: This ratio will not be applicable if the outstanding amount of all ECB, including the proposed one, is up to USD 5 million or its equivalent.

Procedure of raising ECB

All ECB can be raised under the automatic route if they conform to the parameters prescribed under this framework.

For approval route cases,

1. The borrowers may approach the RBI with an application in prescribed format (Form ECB) for examination through their AD Category I bank.

2. Such cases shall be considered keeping in view the overall guidelines, macroeconomic situation and merits of the specific proposals.

3. ECB proposals received in the Reserve Bank above certain threshold limit (refixed from time to time) would be placed before the Empowered Committee set up by the RBI.

4. The Empowered Committee will have external as well as internal members and the RBI will take a final decision in the cases taking into account recommendation of the Empowered Committee.

5. Entities desirous to raise ECB under the automatic route may approach an AD Category I Bank with their proposal along with duly filled in Form ECB.

Reporting of ECB

The borrowers are required to report actual ECB transactions through Form ECB 2 Return through the AD Category I Bank on a monthly basis.


The overseas market is expected to be favourable market for the foreseeable future, and therefore it is expected to lead to higher borrowings by India. With RBI’s check on the ECB, making industry specific distinctions for automatic route and approval route, clearly establishing the end-use restriction and minimum average maturity period etc., it is expected that the ECBs are going to be the priority for bringing investment in India. Further, with RBI allowing the use of ECB proceeds for repayment of loans, the Indian GDP is expected to keep its stability intact and at the same time allows the Indian companies to seek required funds which may not be allowed through local banks or NBFC from the overseas market with lesser interest rates.

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June 2021