External Commercial Borrowings (ECB) provide eligible entities with an avenue to raise funds from outside India. In this article, we explore the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018, and the Master Direction No. 5 on ‘External Commercial Borrowings, Trade Credits, and Structured Obligations.’ We examine the eligibility criteria for borrowers and the purposes for which ECB proceeds can be utilized. Additionally, we delve into the maturity period, borrowing limits, and the procedure and reporting requirements associated with ECB.

I. Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 (Amended up to February 27, 2019):

Under Point No. 4(B) – Borrowing by persons other than Authorised Dealers, it is mentioned that ‘Eligible resident entities may raise ECB from outside India in accordance with the provisions contained in Schedule I.’ Schedule I is the summary and Master Direction given below caters to all the aspects of External Commercial Borrowings.

ECB can be raised in Foreign Convertible Currency as well as in Indian Rupees.

II. Master Direction No. 5 on ‘External Commercial Borrowings, Trade Credits and Structured Obligations’:

Eligibility for Borrower:

a) All entities eligible to raise Foreign Direct Investment

b) Port Trusts, Units in SEZ, SIDBI and EXIM Bank

c) For Indian rupee denominated ECB, additionally registered entities in micro-finance activities can also raise them.

Purpose:

ECB proceeds cannot be utilised for:

a) Real estate activities.

b) Investment in capital market.

c) Equity investment.

d) Working capital purposes, except in case of ECB mentioned at v(b) and v(c) under point 2.1 ECB framework.

e) General corporate purposes, except in case of ECB mentioned at v(b) and v(c) under point 2.1 ECB framework.

f) Repayment of Rupee loans, except in case of ECB mentioned at v(d) and v(e) under point 2.1 ECB framework.

g) On-lending to entities for the above activities, except in case of ECB raised by NBFCs as given at v(c), v(d) and v(e) under point 2.1 ECB framework.

Maturity & Limit:

a) Minimum Average Maturity Period is 3 years. However, for some specified categories mentioned under point 2.1 ECB Framework, the period varies from 1 year to 10 years.

b) All eligible borrowers can raise ECB up to USD 750 million or equivalent per financial year under Automatic Route. For higher amount, Approval Route can be opted. 

Procedure & Reporting:

a) They can be easily raised through Automatic Route. However, for Approval Route, borrowers have to approach RBI with an application in Form ECB.

b) Withdrawal from loan account can be done only after obtaining Loan Registration Number from bank. The same be applied through AD Category I bank.

c) Monthly reporting through Form ECB 2 within seven working days of close of month. Also, any changes are also required to be reported in this form.

Conclusion: External Commercial Borrowings (ECB) serve as a vital source of funding for eligible entities. The regulations and guidelines outlined in the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018, and the Master Direction No. 5 provide a framework for raising ECB. Understanding the eligibility criteria, permissible purposes, maturity period, borrowing limits, and reporting requirements is essential for entities considering ECB.

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