Amidst the recent global challenges and trade wars, many developing countries, including India, faced macro-economic issues due to weakness in their currencies. The Indian government has taken many steps to stabilize the volatility in the rupee by carrying out open market operations in the currency markets, boost exports, additional import duties, etc. India has also taken another step in boosting its foreign reserves by liberalizing the foreign currency loan regime.

The external commercial borrowings regime provides for a framework for Indian corporates to avail foreign currency loans from an overseas lender. Over the years, the ECB regime has undergone significant changes.

The RBI had notified the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018, on Dec. 17, 2018. In continuation, the RBI circular on April12, 2021, has revised the extant ECB framework. This signifies a major change in policy by the government.

Under the new framework, the condition to be an eligible borrower is that the entity must be eligible to receive FDI. Thus, it follows that whether an entity actually has received FDI is not relevant as long as it is eligible to receive FDI under Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2017.

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; FCCBs; FCEBs and Financial Lease ECBs clubbed as ‘Foreign currency denominated ECB’ (“FCY ECB”)

Loans including bank loans; floating/ fixed rate notes/bonds/ debentures/ preference shares (other than fully and compulsorily convertible instruments); Trade credits beyond 3 years; and Financial Lease clubbed as INR denominated ECB (“INR ECB”). Also, plain vanilla Rupee denominated bonds issued overseas, which can be either placed privately or listed on exchanges as per host country regulations.

The clubbing of the track would result in the ECB regulatory framework being simpler and less complex, and reduce regulatory arbitrage. 

Eligible borrowers

“Eligible borrower” under ECB framework has been aligned with the FDI policy, whereby all the entities (including LLPs) that are eligible to receive FDI have now been brought under the classification of “eligible borrowers”. This applies for both FCY ECB and INR ECB.

This is a positive move by government in considering that the list of entities eligible to raise FDI are sufficiently regulated in any case under the regulations applicable to FDI.

It would provide a much needed encouragement to LLPs, and may result in growth in the number of LLPs used for structuring investments. 

Eligible lenders

The lender should be resident of FATF or IOSCO compliant country, including on transfer of ECB. However,

a) Multilateral and Regional Financial Institutions where India is a member country will also be considered as recognized lenders;

b) Individuals as lenders can only be permitted if they are foreign equity holders (i.e, direct holding of at least 25%,or indirect holding of min. 51%, or group company with common overseas parent) or for subscription to bonds/debentures listed abroad; and

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

Minimum average maturity period

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 years
(c) ECB raised for

(i) working capital purposes or general corporate purpose

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

10 years
(d) ECB raised for

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

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

7 years
(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 years
for the categories mentioned at (b) to (e) –

(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.

 End-use restrictions

The negative list, for which the ECB proceeds cannot be utilized, would include the following:

(a) real estate activities;

(b) investment in capital market;

(c) equity investments;

(d) repayment of Rupee loans (except if availed domestically for capital expenditure or otherwise);

(e) working capital purposes and general corporate purposes (except if from foreign equity holder); and

(f) on-lending for the above activities.

 Yearly ECB Limits

ECB up to USD 750 million or its equivalent can be raised by eligible borrowers 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.

However, 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. Further, the borrowing entities will also be governed by the guidelines on debt equity ratio, issued, if any, by the sectoral or prudential regulator concerned. 

Reporting Requirements

Borrowings under ECB Framework are subject to following reporting requirements apart from any other specific reporting required under the framework:

  • Loan Registration Number (LRN):Any draw-down in respect of an ECB should happen only after obtaining the LRN from the Reserve Bank. To obtain the LRN, borrowers are required to submit duly certified Form ECB.
  • Monthly Reporting of actual transactions:The borrowers are required to report actual ECB transactions through Form ECB 2 Return through the AD Category I bank on monthly basis so as to reach DSIM within seven working days from the close of month to which it relates. Changes, if any, in ECB parameters should also be incorporated in Form ECB 2 Return.

 Late Submission Fee (LSF)

Any borrower, who is otherwise in compliance of ECB guidelines, can regularizethe delay in reporting of drawdown of ECB proceeds before obtaining LRNor delay in submission of Form ECB 2 returns, by payment of late submission fees as detailed in the following matrix:

Sr. No. Type of Return/Form Period of delay Applicable LSF
1 Form ECB 2 Up to 30 calendar days from due date of submission INR 5,000
2 Form ECB 2/Form ECB Up to three years from due date of submission/date of drawdown INR 50,000 per year
3 Form ECB 2/Form ECB Beyond three years from due date of submission/date of drawdown INR 100,000 per year


The revision of the regulatory framework for ECB by the RBI is a positive step in simplifying the extant regime for ECB, and has resulted in substantial easing of the regime for debt funding by foreign corporates. The tax sops that have been introduced for ECBs, coupled with relaxation on raising ECBs, bucket of eligible lenders and the purpose for which ECBs can be raised, should encourage further ECB flows into the country.

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Qualification: CA in Practice
Company: Neeraj Bhagat & Co.
Location: Delhi, Delhi, India
Member Since: 08 Jun 2017 | Total Posts: 2
Gourav Goyal is Chartered Accountant with more than 10 years of experience. He help foreign companies in opening up of Liaison/ Branch Office in India and complying with various tax laws applicable to foreign companies while establishing a business in India. View Full Profile

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  1. SR Desai says:

    In terms of FAQ No. 25. on External Commercial Borrowings (ECB) and Trade Credits published by Reserve Bank of India “Can ECB be availed of for making contribution in an LLP?” the answer was “No, it is not permitted”
    LLP cannot access ECB as policy.

    1. cagrv says:

      Dear Mr. Desai,

      As per Master Direction, Eligible borrowers is defined as All entities and it does not exclude LLP. However, there is a restriction on end use of funds borrowed under ECB. It restricts Equity Investment. Hence RBI clarifies through Q. 25 that Equity investment is a broad term and it includes contribution in LLP.

      This is the reason that RBI gave 2 different question i.e. Q. 24 w.r.t. Equity Investment and Q. 25 w.r.t. contribution in LLP.

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