What is ECB: External Commercial Borrowings are commercial loans raised by eligible resident entities from recognised non-resident.

The ECB has been classified in category

  • Foreign Denomination ECB: Loan raised in any freely convertible Foreign Currency
  • INR Denomination ECB: Loan raised in INR

Method of raising ECB: ECB can be accessed under two routes, viz.

  • Automatic Route
  • Approval Route

Automatic Route: For the automatic route, prospective borrowers need not to take RBI approval for raising ECB, in this the cases are examined by the Authorised Dealer Category-I (AD Category-I) banks.

Approval Route: In this the prospective borrowers are required to send their requests to the Reserve Bank through their AD Banks for examination.

Aspect to be focused under Automatic route are as under:

Parameters FCY denominated ECB INR denominated ECB
Forms of ECB i. Bank Loan

ii. Security Instrument (e.g. floating/ fixed rate notes/ bonds, Non- convertible , Optionally Convertible or Partially convertible Preference share/Debenture

iii. Trade credits (Buyers Credit, Suppliers Credit)

iv. FCCBs (Foreign Currency Convertible Bonds)

v. FCEBs (Foreign Currency Exchangeable Bonds)

vi. Financial Lease.

i. Bank Loan

ii.   Security Instrument (e.g. floating/ fixed rate notes/ bonds, Non- convertible , Optionally Convertible or Partially convertible Preference share/Debenture

iii. Trade credits (Buyers Credit, Suppliers Credit)

iv. Financial Lease.

v. Plain vanilla INR denominated bonds issued overseas, which can be either placed privately or listed on exchanges as per host country regulations.

Eligible borrowers All entities eligible to receive FDI. Further, the following entities are also eligible to raise ECB:

i. Port Trusts;

ii. Units in SEZ;

iii. SIDBI; and

iv. EXIM Bank of India.

i. All entities eligible to raise FCY ECB; and

ii. Registered entities engaged in micro-finance activities, viz., registered Not for Profit companies, registered societies/trusts/ cooperatives and Non-Government Organisations.

Eligible lenders i. 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.

ii. Multilateral and Regional Financial Institutions where India is a member country

iii. Individuals as lenders can only be permitted if they are foreign equity holders* or for subscription to bonds/debentures listed abroad

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

v. Foreign branches / subsidiaries of Indian banks, subject to applicable prudential norms, can participate as arrangers/underwriters/market-makers/traders for INR denominated Bonds issued overseas.

vi. Underwriting by foreign branches/subsidiaries of Indian banks for issuances by Indian banks will not be allowed.

*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

Limit for raising ECB i. All eligible borrowers can raise ECB up to USD 750 million or equivalent per financial year

ii. Further, in case of FCY denominated ECB raised from direct foreign equity holder, ECB liability-equity ratio for ECB raised cannot exceed 7:1*

iii. 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.

E.g. Direct or Indirect Equity holding by foreign equity holder is USD 100 million then the prospective borrower can raise ECB up to USD 700 million subject to maximum ECB limit of USD 750 million per financial year

* 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.

Minimum Average Maturity Period (MAMP)
Category MAMP
ECB raised by Manufacturing Companies up to USD 50 million or its equivalent per financial year. 1 year
ECB raised from foreign equity holder for working capital purposes, general corporate purposes or for repayment of Rupee loans 5 years
ECB raised for working capital purposes or general corporate purposes 10 years
ECB raised for repayment of Rupee loans availed domestically for capital expenditure 7 years
ECB raised for repayment of Rupee loans availed domestically for purposes other than capital expenditure 10 years
ECB raised for on-lending by NBFCs for working capital purposes or general corporate purposes 10 years
ECB raised for on-lending by NBFCs for

repayment of Rupee loans availed domestically for capital expenditure

7 years
ECB raised for on-lending by NBFCs for

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

10 years
All-in-cost Benchmark rate* + 450 bps spread.

Benchmark rate: Benchmark rate in case of FCY ECB refers to 6-months LIBOR rate of different currencies or any other 6-month interbank interest rate applicable to the currency of borrowing e.g. EURIBOR.

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

Note :

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.

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

i. Real estate activities.

ii. Investment in capital market.

iii. Equity investment.

iv. Working capital purposes, except as allowed in MAMP above.

v. General corporate purposes, except as allowed in MAMP above

vi. Repayment of Rupee loans, except as allowed in MAMP above

vii. On-lending to entities for the above activities, except as allowed in MAMP above

Other points to be take care

Borrowers may enter into loan agreement complying with ECB guidelines with recognised lender for raising ECB under Automatic Route without prior approval of RBI. The borrower must obtain a Loan Registration Number (LRN) from the Reserve Bank of India before drawing down the ECB.

Loan Registration Number (LRN): To obtain the LRN, borrowers are required to submit duly certified Form ECB, which also contains terms and conditions of the ECB, in duplicate to the designated AD Category I bank.

In turn, the AD Category I bank will forward one copy to the Director, Reserve Bank of India, Department of Statistics and Information Management, External Commercial Borrowings Division.

Note: Copies of loan agreement for raising ECB are not required to be submitted to the Reserve Bank.

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) for delay in reporting:

Type of Return/Form Period of delay Applicable LSF
Form ECB 2 Up to 30 calendar days from due date of submission INR 5,000
Form ECB 2/Form ECB Up to three years from due date of submission/date of drawdown INR 50,000 per year
Form ECB 2/Form ECB Beyond three years from due date of submission/date of drawdown INR 100,000 per year

Author Bio

Qualification: CA in Job / Business
Company: N/A
Location: Gurgaon, Haryana, IN
Member Since: 06 Jun 2020 | Total Posts: 1

More Under Fema / RBI

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

October 2020
M T W T F S S
 1234
567891011
12131415161718
19202122232425
262728293031