External Commercial Borrowings (ECB) refer to commercial loans
in the form of
bank
loans, buyers‘ credit, suppliers‘ credit, securitized instruments (e.g. floating rate notes and
fixed rate bonds, non-convertible, optionally convertible or partially convertible preference shares) availed of from
non-resident lenders with a minimum
average maturity of 3 years.
ECB can
be
accessed under two routes,
viz., (i)
Automatic
Route
and
(ii) Approval Route. Automatic route can be availed in case the eligility criteria for automatic route is met. In case of
doubt as regards eligibility to access
the Automatic Route, applicants
may take recourse to the
Approval Route.
Automatic
route:
§ ECB
can be given by only recognized
lenders and
can be availed by eligible buyers only.
§ The
proposed ECB must satisfy the general conditions
(such as the end use restrictions, average
maturity and all in cost ceilings etc) prescribed
under the ECB
guidelines for qualifying under the Automatic Route.
§ Software
companies can
avail
ECB for the purpose of import
of capital
goods.
§ The
borrower can draw-down the loan only after obtaining the loan registration number (‗LRN‘)
from
Department of Statistical
and Information
Systems (DSIM), Reserve
Bank
of India
§ Form 83 (in duplicate), duly certified by the Company Secretary or
Chartered Accountant is required to be filed with
Authorised dealer. One copy is to be forwarded by the designated AD bank to the Director, Balance of
Payments Statistics Division, DSIM, Mumbai. Submission of copy
of loan agreement is not
required.
§ The
amount that can be availed under automatic
route under ECB is USD 500 Million oer financial year. The maturity of ECB in
case the amount upto USD 20 million can not be less than three years and in case of ECB above USD 20 million or equivalent and up to USD 500 million or its equivalent with a
minimum average maturity
of five years.
§ There is also ceiling on
the all in cost that can be incurred by the borrower towards the cost
like rate of interest, other fees
and
expenses in foreign currency except commitment fee, pre-payment fee, and fees payable in Indian Rupees etc. The cost
is specified to be LIBOR for
the respective currency of borrowing of 6 months + 300 basis points in case the period of maturity is 3 years and upto 5 years and it can be LIBOR of 6 months + 500 basis points in case period of maturity is
5 years or more.
Prepayment of ECB
USD
500 million would be allowed by the AD bank without
prior approval of
RBI subject to
compliance with the stipulated minimum average maturity period as applicable to the loan, while
pre-payment of ECB for amounts exceeding USD 500 million
would be considered by the RBI under the Approval Route.
Monthly
return
Borrowers
are required to submit ECB-2 Return certified by the designated AD on monthly basis so
as
to reach DSIM, RBI within
seven
working days
from the close of month
to which it relates.
Approval Route
Application in Form ECB to be filed with the RBI, with
(i) A copy of offer letter from the overseas lender/supplier furnishing complete details of the terms and
conditions of proposed
ECB;
and
(ii) A copy of the import contract,
proforma/commercial invoice/bill of lading.
Borrowers are required to submit ECB-2 Return certified by the designated
AD
on monthly basis so
as
to reach DSIM, RBI within
seven
working days
from the close of month
to which it relates.
Conversion of ECBs to
equity
§ ECBs
can be converted to equity subject to
conditions prescribed in this behalf in the ECB
guidelines.The equity shares
must be valued as
per
the guidelines/regulations
issued by SEBI/ Controller
of Capital
Issues in case
of listed/unlisted
§ Conversion of ECB may be
reported to the Reserve Bank as follows:
(a)
Borrowers
are required to report full conversion of outstanding ECB into equity in the Form FC-GPR to the concerned Regional Office of
the Reserve Bank as well as
in Form ECB-2 submitted to the DSIM, RBI within seven working days from the
close of month to which it relates. The words "ECB
wholly converted to equity" should be clearly indicated on
top of the Form ECB-2. Once reported, filing of
ECB-2 in the subsequent
months is not necessary.
(b) In case of partial conversion of outstanding
ECB into equity, borrowers are required
to report the converted portion in Form FC-GPR to the concerned
Regional
Office as well as
in Form ECB-2 clearly differentiating the converted portion from the
unconverted portion. The words "ECB
partially converted to equity"
should be indicated on top of the Form
ECB-2. In subsequent months, the outstanding portion of ECB
should be reported in Form
ECB-2
to DSIM.
The
policy for ECB is also applicable to FCCB
in
all respects including reporting requirements.
Further FCCBs issue must be in compliance with the guidelines prescribed in the Regulation 21
FEMA
120/2004-RB dated July 7, 2004 and the Schedule 1 thereunder. The issue size of the FCCBs cannot exceed USD 500 million
as per the present policy. Issues exceeding USD 500
million would require prior approval
of the Reserve Bank
of India.
The primary responsibility to ensure that ECB raised / utilised are in conformity with the ECB guidelines
and
the Reserve Bank regulations
/ directions is that of the borrower concerned and any
contravention of the ECB
guidelines will be viewed seriously and will invite penal action under
FEMA 1999 (cf. A. P. (DIR Series)
Circular No. 31 dated February 1, 2005). The designated AD bank is also
required to ensure that raising
/ utilisation
of ECB is in
compliance with ECB guidelines at
the time of certification.
Any changes in the terms and conditions of the ECB after obtaining LRN is
required to be reported to
designated AD Category-I banks to approve the same. Following requests from
the ECB
borrowers, subject
to specified conditions:
(a) Changes/modifications in
the drawdown/repayment
schedule.
Designated AD Category-I
banks may approve changes/modifications in
the drawdown/repayment schedule of the ECBs already availed, both under the approval and
the automatic routes, subject to the condition that the average maturity period, as
declared
while obtaining the LRN, is maintained. The changes in the drawdown/repayment schedule
should be promptly reported to the DSIM, RBI
in Form 83. However, any elongation/rollover in the repayment on expiry of the original maturity of the ECB would
require the prior approval of the Reserve Bank.
(b) Changes in the currency
of
borrowing
Designated AD
Category-I banks may allow changes in the
currency of borrowing, if so desired, by the borrower
company, in respect of ECBs availed of both under the automatic and the approval
routes, subject to all other terms and conditions of the ECB remaining
unchanged. Designated AD
banks should, however,
ensure that the proposed currency of
borrowing is freely convertible.
(c) Change of the AD
bank
Designated AD Category-I banks may allow change of the existing designated AD bank by
the
borrower company for effecting its transactions pertaining to the ECBs
subject to No- Objection
Certificate (NOC)
from the existing designated AD bank and after
due diligence.
(d) Changes in the name of the Borrower Company
Designated AD
Category-I banks may allow changes in the name of the borrower company subject to production of supporting documents
evidencing the change in the name from the Registrar
of Companies.
