External Commercial Borrowing

EXTERNAL COMMERCIAL
BORROWING
PRESENTED BY-
Kratika Aggarwal
Anshika Sharma
Riya Paul
SUBMITTED TO-
MS. ANITA KOHLI
EXTERNAL COMMERCIAL BORROWINGS
External Commercial Borrowings are commercial loans
raised by eligible resident entities from recognised non-
resident entities and should conform to parameters such as
minimum maturity, permitted and non-permitted end-uses,
maximum all-in-cost ceiling, etc.
FOREIGN EQUITY HOLDER:
It means (a) direct foreign equity holder with
minimum 25% direct equity holding in the
borrowing entity,
(b) indirect equity holder with minimum indirect
equity holding of 51%, or
(c) group company with common overseas parent.
FEMA
The objectives of FEMA

To consolidate the law relating to foreign exchange
Facilitating external trade and payments
Promoting the orderly development and maintenance of
foreign exchange market in India
 Transactions on account of External Commercial
Borrowings (ECB) and Trade Credit (TC) are governed by
clause (d) of sub-section 3 of section 6 of the Foreign
Exchange Management Act, (FEMA).
 ECB both in foreign currency and Indian Rupee, has been

consolidated into the Revised Regulation FEMA.
• ECB FRAMEWORK
The framework for raising loans through ECB (hereinafter referred to as the
ECB Framework) comprises the following two options:
A) Currency Of Borrowing
FCY denominated ECB- Any freely convertible Foreign Currency
INR denominated ECB- Indian Rupee (INR)
B)Forms of ECB
FCY denominated ECB- Loans including bank loans; bonds/debentures (other
than fully and compulsorily convertible instruments); Trade credits
beyond 3 years and Financial Lease
INR denominated ECB- Loans including bank loans;
bonds/debentures (other than fully and compulsorily
convertible instrument Financial Lease . Also, plain vanilla
Rupee denominated bonds issued overseas, which can be
either placed privately or listed on exchanges as per host
country regulations.
C)Eligible Borrowers
FCY denominated ECB- All entities eligible to receive FDI.
Further, the following entities are
also eligible to raise ECB are Port Trusts;Units in SEZ;
SIDBI; and
EXIM Bank of India.
INR denominated ECB- All entities eligible to raise
FCY ECB; and Registered entities engaged in micro-
finance activities, viz, registered Not for Profit
companies, registered societies/trusts/ cooperatives and
Non-Government Organisations.
D) Recognised Lenders
1.The lender should be resident of FATF or IOSCO

(The International Organization of Securities
Commissions)compliant country, including on transfer
of ECB.
2. Individuals as lenders can only be permitted if they
are foreign equity holders or for subscription to
bonds/debentures listed broad
3. Foreign branches / subsidiaries of Indian banks are
permitted as recognised lenders only for FCY ECB
(except FCCBs i.e. Foreign currency convertible bonds
and FCEBs Foreign currency exchangeable bonds).
Minimum Average Maturity Period (MAMP)
 ECB raised by manufacturing companies up to USD 50
million or its equivalent per financial year. - 1 year
 ECB raised from foreign equity holder for working capital
purposes, general corporate purpose or to repay rupee loan.
– 5 years
 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.
End-uses (Negative list)
 The negative list, for which the ECB proceeds cannot be utilised, would include the
following:
 a) Real estate activities.
 b) Investment in capital market.
 c) Equity investment.
 d)Working capital purposes, except in case of ECB mentioned.
 e) General corporate purposes, except in case of ECB mentioned .
 f) Repayment of Rupee loans, except in case of ECB mentioned .
 g) On-lending to entities for the above activities.
Exchange rate
 FCY denominated ECB

Change of currency of FCY ECB into INR ECB can be at the exchange
rate prevailing on the date of the agreement for such change between the
parties concerned or at an exchange rate, which is less than the rate
prevailing on the date of the agreement, if consented to by the ECB lender.
 INR denominated ECB
For conversion to Rupee, the exchange rate shall be the rate prevailing on
the date of settlement.
Designated Authorised Dealer Category
I Bank:
It is the bank branch which is designated by the ECB/TC

borrower for meeting the reporting requirements
including obtaining of the LRN/LIN from the Reserve
Bank, exercising the delegated powers under these
guidelines and monitoring of ECB/TC transactions.
ECB liability-Equity ratio
For the purpose of ECB liability-equity ratio, ECB amount will include
all outstanding amount of all ECB (other than INR denominated) and the
proposed one (only outstanding ECB amounts in case of refinancing)
while equity will include the paid-up capital and free reserves (including
the share premium received in foreign currency) as per the latest audited
balance sheet. Both ECB and equity amounts will be calculated with
respect to the foreign equity holder. Where there is more than one foreign
equity holder in the borrowing company, the portion of the share premium
in foreign currency brought in by the lender(s) concerned shall only be
considered for calculating the ratio. The ratio will be calculated as per
latest audited balance sheet.
LIMITS AND LEVERAGE
Under the aforesaid framework, all eligible borrowers can raise ECB
up to USD 750 million or equivalent per financial year under the
automatic route. Further, in case of FCY denominated ECB raised
from direct foreign equity holder, ECB liability-equity ratio for ECB
raised under the automatic route cannot exceed.
However, this ratio will not be applicable if the outstanding amount

of all ECB, including the proposed one, is up to USD 5 million or its
equivalent. Further, the borrowing entities will also be governed by
the guidelines on debt equity ratio, issued, if any, by the sector or
prudential regulator concerned.
PROCEDURE OF RAISING ECB :
 All ECB can be raised under the automatic route if

they conform to the parameters prescribed under this
framework.
 For approval route cases, the borrowers may
approach the RBI with an application in prescribed
format .
 For examination through their AD Category I bank.
Such cases shall be considered keeping in view the
overall guidelines, macroeconomic situation and
merits of the specific proposals.
ECB proposals received in the Reserve Bank above certain
threshold limit (refixed from time to time) would be placed
before the Empowered Committee set up by the Reserve
Bank.
The Empowered Committee will have external as well as

internal members and the Reserve Bank will take a final
decision in the cases taking into account recommendation of
the Empowered Committee.
Entities desirous to raise ECB under the automatic route may

approach an AD Category I bank with their proposal along
with duly filled in Form ECB.
REPORTING REQUIREMENTS:
Borrowings under ECB Framework are subject to following

reporting requirements apart from any other specific reporting
required under the framework:
1. Loan Registration Number (LRN)
2. Changes in terms and conditions of ECB
3. Monthly Reporting of actual transactions.

Loan Registration Number:
Any draw-down in respect of an ECB should happen
only after obtaining the LRN from the Reserve Bank. To
obtain the LRN, borrowers are required to submit duly
certified Form ECB, which also contains terms and
conditions of the ECB, in duplicate to the designated AD
Category I bank.
Copies of loan agreement for raising ECB are not required to

be submitted to the Reserve Bank.
Changes in terms and conditions of ECB
Changes in ECB parameters in consonance with the

ECB norms, including reduced repayment by mutual
agreement between the lender and borrower, should be
reported to the DSIM through revised Form ECB at the
earliest, in any case not later than 7 days from the
changes effected.
While submitting revised Form ECB the changes

should be specifically mentioned in the communication.
Monthly Reporting of actual transactions
The borrowers are required to report actual ECB

transactions through return through the AD
Category I bank on monthly basis so as to reach
DSIM within seven working days from the close of
month to which it relates.
Changes, if any, in ECB parameters should also be

incorporated in Form ECB 2 Return.
N K YO U. .
THA

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EXTERNAL COMMERCIAL

The objectives of FEMA

 ECB both in foreign currency and Indian Rupee, has been

1.The lender should be resident of FATF or IOSCO

 FCY denominated ECB

It is the bank branch which is designated by the ECB/TC

However, this ratio will not be applicable if the outstanding amount

 All ECB can be raised under the automatic route if

The Empowered Committee will have external as well as

Entities desirous to raise ECB under the automatic route may

Borrowings under ECB Framework are subject to following

2. Changes in terms and conditions of ECB

3. Monthly Reporting of actual transactions.

Copies of loan agreement for raising ECB are not required to

Changes in ECB parameters in consonance with the

While submitting revised Form ECB the changes

The borrowers are required to report actual ECB

Changes, if any, in ECB parameters should also be

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