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What is “External Commercial Borrowings (ECB)

“External Commercial Borrowings (ECB)” means borrowing by an eligible resident entity from outside India in accordance with framework decided by the Reserve Bank of India in consultation with the Government of India:

Eligible entities may raise External Commercial Borrowings (ECB) from outside India in accordance with the provisions.

♦ Currency of borrowing

ECB can be raised in any freely convertible foreign currency as well as in Indian Rupees or any other currency as specified by the Reserve Bank of India in consultation with the Government of India.

♦ Eligibility of borrowers

This has been expanded to include all entities eligible to receive FDI. Additionally, Port Trusts, Units in SEZ, SIDBI, EXIM Bank, registered entities engaged in micro-finance activities, viz., registered not for profit companies, registered societies/trusts/ cooperatives and non-government organizations/Start-ups can also borrow under this framework.

Further, Reserve Bank, in consultation with the Government of India may specify any other entity/sector eligible to raise ECBs or amend the existing eligibility norms.

♦ Eligible Lenders:

The lender should be resident of FATF or IOSCO compliant country as defined in the ECB policy, including on transfer of ECBs. However, Multilateral and Regional Financial Institutions where India is a member country will also be considered as recognized lenders.

♦ Foreign Equity Holder: 

It means (a) direct foreign equity holder with minimum 25% direct equity holding in the borrowing entity, (b) indirect equity holder with minimum indirect equity holding of 51%, or (c) group company with common overseas parent

♦ Sources of ECB

External Commercial Borrowings can be availed through;

1. Automatic Route-Through Authorized Dealers, AD Category -I banks;

    • Approval Route-Perspective borrower should send its proposal for ECB to RBI through AD-Category-I bank for examination.

♦ Maturity

Minimum average maturity will be 5 years for ECB raised from foreign equity holder for working capital purposes, general corporate purposes or for repayment of Rupee loans. (Except for manufacturing companies for which 1 year is prescribed). There are no specific guidelines for maximum period.

♦ All-in-cost

Benchmark rate in case of Rupee denominated ECB (INR ECB) will be prevailing yield of the Government of India securities of corresponding maturity.

♦ Individual Limits of borrowing

All eligible borrowers/category of borrowers may raise ECB of up to USD 750 million or equivalent per financial year. For Startups the amount would be limited to USD 3 million or equivalent per financial year. 

♦ Security

The borrower covered in this Schedule may provide security to the lender / suppliers, as specified by the Reserve Bank from time to time in terms of these regulations or under any other Regulations framed under the Act. The borrower may also provide corporate and / or personal guarantee as security for the borrowing, subject to terms and conditions as specified by the Reserve Bank from time to time. 

However, banks, financial institutions and Non-Banking Finance Companies shall not provide (issue) any type of guarantee in favour of overseas lender on behalf of their constituents for their borrowings under this Schedule, except in accordance with specific stipulations made by the Reserve Bank.

♦ Drawal of Loan

Draw-downs of borrowing under this Schedule shall be made only after obtaining the loan registration number (LRN) from the Reserve Bank or from the ADs.

♦ Reporting

The borrower shall adhere to the reporting procedure as specified by the Reserve Bank from time to time. 

♦ List of the documents required for the purpose for bringing the external commercial Borrowings in India.

If it requires approval of RBI then apply to RBI, Mumbai with detailed project plan and report in Form ECB. In this course Borrower  would need the following documents:

1. Detailed project report for ECB with projected financials.

2. Note as how the ECB would add to the business of the company.

3. Designated Authorized Dealer through which various applications/ forms; e.g. form83*, ECB1, ECB2 etc. may be applied.

4. Copy of resolution of the Board with other company documents like Annual report, MOA/AOA etc.

5. Post execution of loanagreement; file charge docs with Roc as perthe Companies Act.

*Form 83 needs to be filed to obtain Loan registration number (LRN) without which disbursement of loan will not happen. Once LRN is intimated to overseas banker, funds would be transferred to company’s account.

♦ List of Documents Required (Overseas Lender)

1. Copy of passport duly translated and appostiled by Indian embassy outside India and public notary there.

2. Copy of national card or id issued appostiled by Indian embassy outside India and public notary there.

3. One copy of Current utility Bill.

4. Passport size photograph.

5. One fit and proper certificate from any legal person abroad and FIRC from AD Bank.

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CS Shally Arora View Full Profile

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May 2024