A.P. (DIR Series) Circular No. 55,
Dated- January 01, 2015
Security for External Commercial Borrowings
Attention of Authorised Dealers Category-I (AD Category-I) banks is invited to Paragraphs 1 (A)(vii) and 1 (B) (vi) of Annex to A P (DIR Series) Circular No. 5 dated August 1, 2005 and A P (DIR Series) Circular No. 1 dated July 11, 2008 relating to creation of charge over securities for External Commercial Borrowings (ECB).
2. Under the extant ECB guidelines, the choice of security to be provided to the overseas lender / supplier for securing ECB is left to the borrower. With a view to liberalising, expanding the options of securities and consolidating various provisions related to creation of charge over securities for ECB at one place, it has been decided that AD Category-I banks may allow creation of charge on immovable assets, movable assets, financial securities and issue of corporate and / or personal guarantees in favour of overseas lender / security trustee, to secure the ECB to be raised / raised by the borrower, subject to satisfying themselves that:
(i) the underlying ECB is in compliance with the extant ECB guidelines,
(ii) there exists a security clause in the Loan Agreement requiring the ECB borrower to create charge, in favour of overseas lender / security trustee, on immovable assets / movable assets / financial securities / issuance of corporate and / or personal guarantee, and
(iii) No objection certificate, wherever necessary, from the existing lenders in India has been obtained.
3. Once aforesaid stipulations are met, the AD Category-I bank may permit creation of charge on immovable assets, movable assets, financial securities and issue of corporate and / or personal guarantees, during the currency of the ECB with security co-terminating with underlying ECB, subject to the following:
(a) Creation of Charge on immovable assets:
(b) Creation of Charge on Movable Assets
In the event of enforcement / invocation of the charge, the claim of the lender, whether the lender takes over the movable asset or otherwise, will be restricted to the outstanding claim against the ECB. Encumbered movable assets may also be taken out of the country.
(c) Creation of Charge over Financial Securities
(d) Issue of Corporate or Personal Guarantee
4. These amendments to the ECB guidelines shall come into force with immediate effect, subject to review from time to time. All other provisions related to raising of ECB remain unchanged.
5. AD Category – I banks may bring the contents of this Circular to the notice of their constituents and customers.
6. The directions contained in the Circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals required, if any, under any other law.
B P Kanungo
Principal Chief General Manager