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Procedure for raising External Commercial Borrowing (ECB)

What is External Commercial Borrowings (ECB)?

ECB is one of the instruments through which commercial loans can be availed from foreign sources. It is governed by the Foreign Exchange Management Act Guidelines for Borrowing.

Methods of Raising ECBs

There are two ways by which ECBs can be raised:
1. Automatic Route – No approval from Reserve Bank of India/ Government of India is required.
2. Approval Route – Approval from Reserve Bank of India/ Government of India is required.

In both these cases Loan Register Number (LRN) (Form 83) has to be obtained and monthly filings (ECB-2) have to be done with the Reserve Bank of India.

Automatic Route

1. Eligible Borrowers:
• Corporates (Registered under the Companies Act), Housing finance companies & Non-Banking Financial Companies.
• NGOs engaged in micro-financing activities, should have borrowing relationship for at least three years with a scheduled commercial bank authorized to deal in foreign exchange.
• Units of SEZs.

Who are not eligible to raise ECB?
(i) Individuals; (ii) Trusts; and (iii) Non-profit Organizations (NGOs).

2. Recognized Lenders:
• International Banks
• International Capital Markets
• Multilateral Financial Institutions (IFC,ADB,CDC)
• Export Credit Agencies
• Suppliers of equipment
• Foreign collaborators
• Foreign equity holders
  . For ECB up to 5 million $ - minimum equity of 25%
  . For ECB more than 5 million $ - minimum equity of 25% & debt-equity ratio not exceed 4:1

3. Amount and Maturity:
• Maximum ECB to be raised - $500 million or equivalent during a financial year.
• ECB up to $ 20 million – three years.
• ECB above $ 20 million and up to $500 million – five years.
• NGOs engaged in micro-finance can raise ECB up to $5 million during a financial year.

4. End User permitted:
• Investment e.g. Import of capital goods, implementation of new projects & expansion of existing production units in real sector - industrial sector.
• Overseas direct investment in Joint Ventures (JV) / Wholly Owned Subsidiaries (WOS).
• For lending to self-help groups.
• Refinancing of an existing ECB.

5. End User not permitted:
• For lending or investment in capital market or acquiring a company in India by a corporate.
• Real Estate – excluding development of integrated township.
• For repayment of existing rupee loans, for working capital and for other general corporate purposes.

Approval Route

1. Eligible Borrowers: (including compliance)
• Financial Institutions (FIs) dealing exclusively with infrastructure or export finance.
• FIs and Banks which had participated in the steel or textile sector.
• NBFCs to finance import of infrastructure equipment for leasing to infrastructure projects.
• Services sector corporates viz. hospitals, hotels and software companies.
• SPVs, or any other entity notified by RBI, set up to finance infrastructure companies / projects exclusively
• Multi-State Co-operative Societies engaged in manufacturing activity.
• Foreign Currency Convertible Bonds (FCCBs) by housing finance companies.
• NGOs engaged in micro-finance activities.

2. Recognized Lenders: same for both routes.

3. Amount and Maturity:
• Maximum ECB - $ 500 million or equivalent during a financial year.
• ECB up to $ 20 million or equivalent - maturity of three years.
• ECB above $ 20 m and up to USD 500 million or equivalent - maturity of five years.
• Amount & Maturity Apart from Automatic route norms:
  . Additional amount of $ 250 million- maturity of more than 10 years under the approval route.
  . Corporate in infrastructure sector can avail ECB up to $ 100 million.
  . Corporate in industrial sector can avail ECB up to $50 million
  . Corporate in the services sector i.e. hotels, hospitals and software companies can avail ECB up to $100 million.

4. End User Permitted:
• Road including bridges, Sea port and Airport, Power, Telecommunication, Railways, Industrial parks, Urban infrastructure (water supply, sanitation and sewage projects).
• Overseas direct investment in Wholly Owned Subsidiaries (WOS) or Joint Ventures (JV).
• Services sector corporates (viz. hospitals, hotels and software companies) importing capital goods.

5. End User Not Permitted: same for both routes.

The above information was last updated on 22-02-2016. Check RBI website or consult with a corporate law expert for latest provisions.

To find and consult with Corporate Lawyers / Advocates in India - visit LawRato's website.


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