External Commercial Borrowing
Borrowing from outside India
What is ECB?• External Commercial Borrowing refer to commercial loans availed from non-resident lenders.
ECB Includes:
Bank Loans
Securitized
instruments
Supplier’s Credit
Buyer’s credit
Loan from
Foreign Collabor
ator/ Foreign Equity Holder
Minimum Average Maturity must be three years
PolicyPermitted by the government as a source of finance for Corporate to
expand their existing capacity & for fresh investment
An annual cap or ceiling on access to ECB
Greater priority for projects in infrastructure, power, oil, telecom, railways, roads, & bridges, ports,
Industrial parks, urban infrastructure & export sectors
Aspects to be focused under ECBEligible
BorrowersEligible lenders
Limits for raising
ECB
Average Maturity Period
All-in Cost ceiling
End Use permitted
End Use not
permitted
Two ways of raising ECB
Automatic
RouteApproval Route
Automatic Route•Where no Approval from RBI is required
Eligible Borrowers
Automatic RouteCorporate other than
hotel , hospital
and software
up to USD 750 million
Corporate in service sector viz.
Hotel, Hospital,
and software
up to USD 200 million
Units in Special
Economic Zone (SEZ)
NGOs engaged in
micro finance
activities (Relationsh
ip of at least 3
years with scheduled bank and
granted ‘fit and proper’ status AD
Bank) Financial Intermediaries such as Banks, Financial Institutions, Housing Finance Companies, NBFCs, Trusts, Individuals and Non Profit making organizations are not eligible to raise ECB
Recognized Lenders
International banks
International capital markets
Financial institutions
such as IFC, ADB, CDC etc.
Suppliers of
equipments
Foreign collaborato
rsForeign equity
Holders (other than
OCBs)Individuals
and Overseas
organizations
Recognized Lenders
Limits for raising ECBCorporate in service sector other than hotel , hospital
and service up to USD 750 millionCorporate in service sector
like Hotel, Hospital, and software up to USD 200
millionNGO engaged in micro finance activity and Micro
Finance Institutions can raise ECB up to USD 10 million or
its equivalentECB up to USD 20 million can
have call/ put option
Average maturity period
LimitsMinimum Average Maturity period
Up to USD 20 million or its equivalent
3 years
Above USD 20 million or its equivalent
5 years
All-in- cost ceilingsAverage Maturity
Period
All-in-cost Ceiling over 6 month LIBOR
3 years and up to 5 years
350 basis points
More than five years
500 basis points
End Use PermittedImport of Capital Goods
Executing new projects
Modernization / Expansion of existing unitsIn infrastructure sector such as Railways, Roads etc.
Payment of spectrum allocationImplementation of new projects or modernization /expansion of existing production units in Real Sector, Industrial sector, Infrastructure sector
End Use PermittedFirst and second stage acquisition of shares in the disinvestment process under the Government’s disinvestment programme of PSU shares. Overseas direct investment in Joint Ventures (JV)/ Wholly Owned Subsidiaries (WOS).Interest During Construction (IDC) for Indian companies which are in the infrastructure sector,.For lending to self-help group or for micro-credit or for bona fide micro finance activity including capacity building by NGOs engaged in micro finance activities.
Approval Route
•Where Approval from RBI is required
Eligible Borrowers
Approval Route
lending by EXIM Bank for specific
purposes
ECB with minimum average maturity
of 5 years by
NBFC
Corporate which
have violated
the extant ECB
policy and are under
investigation by the RBI and/or
ED
Banks and
financial institutions which
had participated in
the textile or
steel sector
restructuring
SEZ develope
rs for providing infrastru
cture facilities within SEZ
Eligible Borrowers
Approval RouteInfrastru
cture Finance Compani
es availing ECB for
on-lending to the
infrastructure sector
Corporate in
service sector other than
hotel , hospital
and service above
USD 750 million
Corporate in
service sector
like Hotel,
Hospital, and
software up to
above 200
million
Foreign Currency Converti
ble Bonds
(FCCBs) by
Housing Finance Compani
es
Multi state
Cooperative
societies engaged
in manufac
turing activities
Eligible Borrowers
Approval Route
Special Purpose
Vehicles or any other
entity notified by
the Reserve Bank, set
up to finance
infrastructure
companies/projects
exclusively, will be
treated as financial
institutions.
ECB from indirect equity holder
provided the indirect
equity holding by the lender
in the Indian
Company is at least 51%.
ECB from a group
company provided both the borrower and the foreign
lender are subsidiaries of the same
parent
Case falling outside the purview of
the automatic route limits
and maturity period.
Recognized lenders
Same as in Automatic RouteForeign equity Holders
Minimum holding required: Paid up equity held directly by the foreign equity lender is 25% but ECB liability-equity ratio exceeds 4:1 and up to 7:1
All-in- cost ceilingsAverage Maturity
Period
All-in-cost Ceiling over 6 month LIBOR
3 years and up to 5 years
350 basis points
More than five years
500 basis points
End Use PermittedThe first stage acquisition of shares in the disinvestment process and also in the mandatory second stage offer to the public under the Government’s disinvestment programme of PSU shares. Bridge Finance- Indian Companies which are in the infrastructure sector are permitted to import capital goods by availing of short term credit(including buyer’s /supplier’s credit) in the nature of ‘bridge finance’.Repayment of Rupee loans availed from domestic banking system
Implementation of new projects or modernization /expansion of existing production units in Real Sector, Industrial Sector, Infrastructure Sector
End Use PermittedThe payment by eligible borrowers in the Telecom sector, for spectrum allocation may, initially be met out of Rupee resources by the successful bidders, to be refinanced with a long-term ECB.
Investment for import of capital goods
Overseas direct investment in Joint Ventures (JV)/ Wholly Owned Subsidiaries (WOS) subject to the existing guidelines on Indian Direct Investment in JV/ WOS abroad. Interest During Construction (IDC) for Indian companies which are in the infrastructure sector, subject to IDC being capitalized and forming part of the project cost.
End Use not Permitted
for real estate sector,
For on-lending or investment in capital market or
acquiring a company (or
a part thereof) in India by a
corporate except Infrastructure
Finance Companies
(IFCs), banks and financial institutions
eligible
for working capital, general
corporate purpose and repayment of existing
Rupee loans.
Other Important pointsIssuance of guarantee, standby letter of credit, letter of undertaking or letter of comfort by banks/ financial institutions/ NBFCs are not permitted.
Borrowers are permitted to keep ECB proceeds abroad or remit these to India pending utilization for permissible end uses.ECB proceeds kept abroad can be invested in deposit/ certificate of deposits/ other products offered by banks, Treasury Bills of 1 year, deposits with overseas branches of Indian Banks - rated not less than AA(-) by S&P/ Fitch/ Moody
Other Important pointsPrepayment of ECB up to USD 500 million is allowed by AD Banks without approval of RBI subject to compliance with minimum average maturity stipulation.
Existing ECB can be refinanced by raising a fresh ECB - outstanding maturity of the existing ECB is maintained and fresh ECB is raised at a lower cost.Borrower to submit an application in form ECB through designated AD bank to the chief General Manager-in-charge, Foreign Exchange Department, Reserve Bank of India, Central Office, External Commercial Borrowings Divisions, Mumbai- 400 001, along with necessary documents.
Conversion of ECB into Equity
Conversion of ECB into equity is
permitted subject to the following
conditions:
The activity of the company is covered under the Automatic
Route for Foreign Direct Investment
Government (FIPB) approval for foreign equity participation has been obtained by the company
The foreign equity holding after such conversion of debt into equity is within
the sectoral cap
Pricing of shares is as per the pricing
guidelines issued under FEMA, 1999 in
the case of listed/ unlisted companies.
Reporting of ECB
Two types of conversation:
Full Conversation of Outstanding ECB into equity
Clear indication on the top of the form ECB 2 of words “ECB
wholly converted to equity”
Partial Conversation of Outstanding ECB into equity
Clear indication on the top of the form ECB 2 of words “ECB
partially converted to equity”
Conversion of ECB may be reported to Reserve Bank of India by Filling of Form FC GPR to the Reserve Bank and Form ECB 2 to DSIM within seven days from the close of month to which it relates.
• AD banks desiring to crystallize their foreign exchange liability arising out of guarantees provided for ECB raised by corporate in India into Rupees, may make an application to the RBI.
Crystallization of ECB
ProcedureObtain Loan request number (LRN)
Borrowers are required to submit Form ECB 2 Return by designated AD to DSIM, RBI on monthly basis.
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