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.