ECB Practical Approach

EXTERNAL COMMERCIAL BORROWING (ECB) (AUTOMATIC ROUTE) –
PRACTICAL APPROACH
SYNOPSIS:-
A. Introduction
B. Meaning of ECB
C. Types of Routes for Raising (ECB)
D. Points to be remembered while scrutiny
A. Introduction: - In the present scenario of globalization and modernization, cross

border transactions have become part & parcel of the routine business activity for any
corporate entity and external commercial borrowing (“ECB”) is one of the common
mode for financing such transactions. This has opened new avenue of practice to
Company Secretaries in practice as Company Secretaries are eligible for certifying all
the forms/ returns relating ECB. However, the professionals are expected to shoulder
enormous responsibilities arising out of such certifications. And therefore, before such
certification every Company Secretary has to ensure that the information mentioned
in the form/return relating to ECB are true & correct in all respect.
B. Meaning of ECB: - In common parlance, the term ECB refers to a Loan from outside
India. However, as per the master circular issued by the Reserve Bank of India (RBI) it
is defined as
a. Commercial loans in the form of bank loans, buyers’ credit, suppliers’ credit,
and securitized instruments (e.g. floating rate notes and fixed rate bonds)
availed of from non-resident lenders with minimum average maturity of 3
years.
b. Foreign Currency Convertible Bonds (FCCBs) i.e. a bond issued by an Indian

company expressed in foreign currency, and the principal and interest in
respect of which is payable in foreign currency.
c. Preference shares (i.e. non-convertible, optionally convertible or partially

convertible) for which, funds have been received on or after May 1, 2007 are
considered as debt.
C. Types of Routes for raising ECB: - There are two routes
a. Automatic Route: Following criteria as given under the ECB master circular of
1st July, 2009 are required to be met simultaneously:
i). Borrowing Limit
C.S.Ankit Doshi 1
ii). Eligible Borrower
iii).Recognized Lender
iv).All-in-cost ceiling
v).End use
b. Approval Route: - If any of criteria given under automatic route are not
fulfilled then you have to follow Approval Route.
D. Points to be remembered while scrutiny: - Under both the routes there are different
forms which are required to be filled and following are the information which needs
to be checked before certifying
i). Under Automatic Route
a. Form – 83: - Under Automatic route, within 7 working days of signing of the
Contract you are required to file Form – 83 to RBI through Authorized Dealer
(“AD”) for allotment of Loan Registration Number (“LRN”). Points which are
required to be checked are represented in table below
S.No. Information Particulars

1. Contract Check the particulars of the Contract and match them
with the criteria given in the master circular under the
route. Especially, eligibility of the Borrower,
recognized Lender, Amount & Maturity, all-in-cost
ceiling, end use, Guarantee & Security.
2. Working days Ensure that the form is being filed with the AD within
7 working days from the date of signing of contract.
3. Lender Category If the lender is a foreign equity holder and

i). he lends for amount less than 5 mn USD then he
should hold at least 25 % equity directly.
ii). he lends for amount more than 5 mn USD then
minimum paid up equity of 25 per cent should be held
directly by the lender and debt-equity ratio should not
exceed 4:1 (i.e. the proposed ECB not exceeding four
times the direct foreign equity holding).
4. Maturity Details Please ensure that average maturity period will be 3

years or more. Check date of drawdown and date on
which loan will paid in full. Time period between the
draw down and repayment date should be equal to or
more then 3 years.
5. Purpose of Here check the purpose of the Loan. It should not be
Borrowing used for restricted uses.
C.S.Ankit Doshi 2
6. All-in-cost Ensure that all-in-cost (which includes rate of interest,
ceiling other fees and expenses in foreign currency except
commitment fee, pre-payment fee, and fees payable in
Indian Rupees) does not exceed;
i). If average maturity

3 % +6th month LIBOR at
period is for 3 yrs and up
the date of Contract.
to 5 yrs.
ii). If average maturity
5 % +6th month LIBOR at
period is for more then 5
the date of Contract.
yrs.
7. Guarantee Issuance of Guarantee, standby letter of credit, letter of
undertaking or letter of comforts by banks, financial
institution & NBFC from India are not permitted.
8. Security The choice of security to be provided to the
lender/supplier is left to the borrower. However,
creation of charge over immoveable assets and
financial securities such as shares, in favour of the
overseas lender is subject to the regulation of the RBI
made in that regard.
b. Form ECB – 2 : - After receiving LRN, the Company is required to file monthly
ECB – 2 return through authorized dealer to the Director, Department of
Statistics and Information Management (DSIM), Balance of Payments Statistics
Division, Reserve Bank of India, C-8/9, Bandra-Kurla Complex, Bandra (East),
Mumbai-400 051 within 7 working days from the close of month. Even if there
is no transaction during a particular period, a ‘Nil’ return should be submitted.
S.No. Information Particulars

1. Working days Ensure that the form is being filed with the AD within
7 working days from the end of the month.
2. Check LRN For checking LRN, check the letter issued by the RBI.
3. Loan Amount Refer Contract for checking the currency and the
amount of the Loan.
4. Draw down & For checking draw down, refer bank account slip of
Loan committed the company for the respective month. Loan amount
details committed but not yet drawn will be – Loan amount
less cumulative amount i.e. amount drawn from date
of the receipt of LRN till last day of the respective
month.
5. Schedule of Refer to the contract for the schedule of draw down of
Draw Down the Loan Amount.
6. Details of Refer to bank account slip of the Company and the
C.S.Ankit Doshi 3
utilization of invoices for the expenditure. Also cross check the
draw down purpose of expenditure with the contract and form 83.
If there is any reservation then accordingly, qualify the
certification.
7. Amount parked If loan amount is parked abroad, then check the details
abroad with the Bank Slip of that account.
8. Utilization from If fund is utilized from the account maintained abroad,
the amount then check Bank slip of that account with the invoices
parked abroad. and the Contract. If there is any reservation then
qualify the certification accordingly.
9. Debt Servicing If any payment is made towards principal/interest,
then check such details with the terms of the contract.
10. Derivative If any such transaction is entered, then check the
transaction details with the contracts authorizing such
transactions.
11. Revised If any changes are made in the terms of ‘repayment
Schedule schedule’ then check these details with the contract
authorizing such changes.
12. Loan This will be the total of the loan drawn plus loan
outstanding committed but not yet drawn. It can also be checked
by deducting total amount drawn at the end of the
respective month from total Loan amount.
Source: - RBI master circular on External Commercial Borrowing July 1, 2009
Disclaimer: - Due care has been taken for putting the above information, however above
information is general in nature which may be differ from situation to situation. This
article is advisory in nature and in no case author is liable for any loss/es.
Sd/-
Ankit Doshi
e-mail id:- [email protected]
C.S.Ankit Doshi 4

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EXTERNAL COMMERCIAL BORROWING (ECB) (AUTOMATIC ROUTE) –

A. Introduction: - In the present scenario of globalization and modernization, cross

b. Foreign Currency Convertible Bonds (FCCBs) i.e. a bond issued by an Indian

c. Preference shares (i.e. non-convertible, optionally convertible or partially

C. Types of Routes for raising ECB: - There are two routes

i). Under Automatic Route

S.No. Information Particulars

3. Lender Category If the lender is a foreign equity holder and

4. Maturity Details Please ensure that average maturity period will be 3

i). If average maturity

S.No. Information Particulars

Source: - RBI master circular on External Commercial Borrowing July 1, 2009

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