External Commercial Borrowing

Draw-down with respect to an ECB is possible only after getting a Loan Registration Number (LRN) from the Reserve Bank. Changes in ECB specifications, in agreement with the ECB norms, should be reported to the RBI at the earliest by way of Revised Form ECB. In any case, the reporting should be made not later than 7 days from the changes effected. Also, the changes should be mentioned explicitly in the communication while submitting Revised Form ECB.

You can raise ECB in INR or any freely convertible Foreign Currency. ECBs can be raised under the automatic route as well as the approval route, under the ECB framework.

Under Automatic Route, the AD Category-I Bank examines the case and gives the approval. Entities wanting to raise ECB under the automatic route may approach an AD Category-I Bank with their proposal along with a duly filled Form ECB. Post approval by AD Category-I Bank, the application along with Form ECB is sent to RBI for issuance of LRN.
Under Approval Route, prospective borrowers send in their requests to the RBI through their AD Category-I Banks for examination. Such cases are considered based on macroeconomic situation and merits of the specific proposals, keeping in view the overall guidelines.

Different types of ECBs are as follows:

• Loans including bank loans
• Securitised instruments (such as floating rate notes, fixed-rate bonds, and non-convertible, partially convertible or optionally convertible preference shares/debentures)
• Trade Credits beyond 3 years
• Foreign Currency Convertible Bonds (FCCBs)
• Financial Lease and
• Foreign Currency Exchangeable Bonds (FCEB)

Which entities are authorised to extend ECB/ are the recognised 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 recognised lenders;

b) Individuals as lenders can only be permitted if they are foreign equity holders or for subscription to bonds/debentures listed abroad; and

c) Foreign branches / subsidiaries of Indian banks are permitted as recognised lenders only for FCY ECB (except FCCBs and FCEBs). Foreign branches / subsidiaries of Indian banks, subject to applicable prudential norms, can participate as arrangers/underwriters/market-makers/traders for Rupee denominated Bonds issued overseas. However, underwriting by foreign branches/subsidiaries of Indian banks for issuances by Indian banks will not be allowed.

What is the Minimum Average Maturity Period (MAMP)?
MAMP for ECB will be 3 years. Call and put options, if any, shall not be exercisable prior to completion of minimum average maturity. However, for the specific categories mentioned below, the MAMP will be as prescribed therein:

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
4(c)	ECB raised for (i) working capital purposes or general corporate purposes (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.

Conversion of ECB, including those which are matured but unpaid, into equity is permitted subject to following conditions:
1. The activity of the borrowing company is covered under the automatic route or required approval is obtained for FDI;
2. Conversion not to breach applicable sectoral cap under FDI policy, and should be with lender’s consent;
3. Compliance with pricing guidelines (FV on date of conversion)
4. Consent of other lenders, if any;
5. Conversion at exchange rate on date of agreement or any lesser rate with mutual consent;
6. Compliance with filing requirements in Form FC-GPR and ECB 2 in case of partial conversion or conversion is phases. Again, such compliance of such conversion has to be done via the AD banker by making  detailed application and providing required documents to AD Banker.

On account of the discontinuance of LIBOR as a benchmark rate, benchmark rate in case of FCY ECB/TC shall refer to any widely accepted inter-bank rate or alternative reference rate (ARR) of 6-month tenor, applicable to the currency of borrowing.

The all-in-cost ceiling for new FCY ECBs and TCs has been increased by 50 bps to 500 bps and 300 bps, respectively, over the benchmark rates. To enable smooth transition of existing ECBs/ TCs linked to LIBOR whose benchmarks are changed to ARRs, the all-in cost ceiling for such ECBs/ TCs has been revised upwards by 100 basis points to 550 bps and 350 bps, respectively, over the ARR.

USD 1.5 bn or equivalent in other currency. For Startups the amount would be limited to USD 3 million or equivalent per financial year. 

The proceeds of borrowings may, pending utilization for permissible end-uses, be parked abroad or in India as per the directions issued by the Reserve Bank from time to time.

Draw-downs of borrowing shall be made only after obtaining the loan registration number from the Reserve Bank or from the ADs, as per the system put in place by the Reserve Bank. For non-adherence, the borrower may be required to pay penalty as specified by the Reserve Bank from time to time.

Provided that non-payment of penalty as above shall be treated as a contravention and shall be subject to compounding or adjudication as provided in the Act or Rules framed thereunder.