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ELIGIBILITY

Required documents

ABOUT External Commercial Borrowing

An External Commercial Borrowing (ECB) is an instrument used in India to facilitate the access to foreign money by Indian corporations and PSUs (public sector undertakings) from official export credit agencies or multilateral financial Institutions with minimum average maturity of 3 years. ECBs cannot be used for investment in stock market or speculation in real estate.

External Commercial Borrowings include:

  • Commercial bank loans.
  • Buyer’s credit.
  • Suppliers' credit.
  • Securitized instruments such as floating rate notes and fixed rate bonds.
  • Credit from official export credit agencies.
  • Foreign currency convertible bonds and commercial borrowings from the private sector.

ECB can be accessed under two routes, viz.:-

  • Automatic Route.
  • Approval Route.


ELIGIBILITY

Eligibility differs from route chosen by the borrower.

Required Documents

The documents needed vary from case to case. Let Finmart understand your needs and assist you in documents requirement.
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Under automatic route, the borrower can apply with its local Indian bank for a permission to avail an ECB if parameters such as maturity period, interest rates etc. are met. The necessary loan registration number is issued within few weeks if the parameters are met.
  • The maximum amount of ECB which can be raised by a corporate other than those in the hotel, hospital and software sectors is USD 750 million or its equivalent during a financial year.
  • Corporates in the services sector viz. hotels, hospitals and software sector are allowed to avail of ECB up to USD 200 million or its equivalent in a financial year for meeting foreign currency and/ or Rupee capital expenditure for permissible end-uses. The proceeds of the ECBs should not be used for acquisition of land.
  • NGOs engaged in micro finance activities and Micro Finance Institutions (MFIs) can raise ECB up to USD 10 million or its equivalent during a financial year. Designated AD bank has to ensure that at the time of drawdown the forex exposure of the borrower is fully hedged.
  • NBFC-IFCs can avail of ECB up to 75 per cent of their owned funds (ECB including outstanding ECBs) and must hedge 75 per cent of their currency risk exposure.
  • NBFC-AFCs can avail of ECBs up to 75 per cent of their owned funds (ECB including outstanding ECBs) subject to a maximum of USD 200 million or its equivalent per financial year with a minimum maturity of 5 years and must hedge the currency risk exposure in full.
  • All eligible borrowers can avail of ECBs designated in INR from ‘foreign equity holders’ as per the extant ECB guidelines.
  • NGOs engaged in micro finance activities can avail of ECBs designated in INR, from overseas organizations and individuals.
Under Approval route, the borrower has to ask RBI for a specific permission to avail an ECB especially if certain parameters are proposed to be exceeded. The RBI reviews the application and gives the decision usually in few months.
  • ECB with minimum average maturity of 5 years by Non-Banking Financial Companies (NBFCs) from multilateral financial institutions, reputable regional financial institutions, official export credit agencies and international banks to finance import of infrastructure equipment for leasing to infrastructure projects.
  • NBFCs-IFCs are permitted to avail of ECB, beyond 75 per cent of their owned funds (including the outstanding ECBs) for on-lending to the infrastructure sector as defined under the ECB policy.
  • NBFCs-AFCs are permitted to avail of ECB, beyond 75 per cent of their owned funds (including outstanding ECBs) to finance the import of infrastructure equipment for leasing to infrastructure projects.
  • Foreign Currency Convertible Bonds (FCCBs) by Housing Finance Companies satisfying the following minimum criteria: (i) the minimum net worth of the financial intermediary during the previous three years shall not be less than Rs. 500 crore, (ii) a listing on the BSE or NSE, (iii) minimum size of FCCB is USD 100 million and (iv) the applicant should submit the purpose / plan of utilization of funds.
  • 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 and ECB by such entities will be considered under the Approval Route.
  • Multi-State Co-operative Societies engaged in manufacturing activity and satisfying the following criteria i) the Co-operative Society is financially solvent and ii) the Co-operative Society submits its up-to-date audited balance sheet.
  • SEZ developers can avail of ECBs for providing infrastructure facilities within SEZ, as defined in the extant ECB policy like (i) power, (ii) telecommunication, (iii) railways, (iv) roads including bridges, (v) sea port and airport, (vi) industrial parks, (vii) urban infrastructure (water supply, sanitation and sewage projects), (viii) mining, exploration and refining and (ix) cold storage or cold room facility, including for farm level pre-cooling, for preservation or storage of agricultural and allied produce, marine products and meat.
  • Developers of National Manufacturing Investment Zones (NMIZs) can avail of ECB for providing infrastructure facilities within SEZ, as defined in the extant ECB policy like (i) power, (ii) telecommunication, (iii) railways, (iv) roads including bridges, (v) sea port and airport, (vi) industrial parks, (vii) urban infrastructure (water supply, sanitation and sewage projects), (viii) mining, exploration and refining and (ix) cold storage or cold room facility, including for farm level pre-cooling, for preservation or storage of agricultural and allied produce, marine products and meat.
  • Eligible borrowers under the automatic route other than corporates in the services sector viz. hotel, hospital and software can avail of ECB beyond USD 750 million or equivalent per financial year.
  • Corporates in the services sector viz. hotels, hospitals and software sector can avail of ECB beyond USD 200 million or equivalent per financial year.
  • Service sector units, other than those in hotels, hospitals and software, subject to the condition that the loan is obtained from foreign equity holders. This would facilitate borrowing by training institutions, R & D, miscellaneous service companies, etc.
  • Low Cost Affordable Housing Projects: Developers/builders / Housing Finance Companies (HFCs) / National Housing Bank (NHB) may avail of ECB for low cost affordable housing projects.
  • Cases falling outside the purview of the automatic route limits and maturity period.
Yes, subject to the following conditions:
  • Fresh ECB is raised at a lower all-in-cost
  • Outstanding maturity of the original ECB is maintained.
  • No dilution in ownership
  • Usually fixed rate of interest is paid
  • Considerable large funds can be borrowed as per the requirements of the borrower.

Yes. Previously the permissible end-use of ECB for both the Routes were strictly controlled, until a recent notification by RBI stated that ECB can now be used under Approval route through their foreign equity holders for “General Corporate purposes” in addition to previously allowed investment financing purposes like purchase of capital assets.
A far reaching relaxation has been achieved for foreign invested Indian companies who earlier had only the alternative of increasing their share capital or availing expensive local INR loans for meeting their financing requirements. 

Still ambiguity exists with regard to the scope of “General Corporate purposes”leaving it open as to whether ECBs may be used for financing working capital or repayment of existing INR loans. Hence we suggest that any application to the RBI should explicitly mention the proposed usage of the ECB (financing current assets, meeting expenses for general corporate purposes, re-payment of existing Rupee loans).

ECBs for general corporate purposes are subject to the following regulations. 

  • The ECB should have an average maturity of at least 7 years.
  • The foreign lender should have a minimum direct stake through paid up equity of 25% in the Indian company.
  • The repayment of the ECB should not commence before the completion of 7 years.
  • The ECB should not be used for any purpose not permitted under the ECB guidelines.
Foreign Currency Convertible bonds (FCCBs) mean 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. Further the bonds are required to be subscribed by a non-resident in foreign currency and convertible into ordinary shares of the issuing company in any manner, either in whole, or in part, on the basis of any equity related warrants attached to debt instruments.
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