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(a) External Commercial Borrowings (ECB)
refer to commercial loans [in the form of bank loans,
buyers' credit, suppliers' credit, securitised
instruments (e.g. floating rate notes and fixed rate
bonds)] availed from non-resident lenders with minimum
average maturity of 3 years. (b) 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 issued in accordance with
the scheme viz., "Issue of Foreign Currency convertible
bonds and Ordinary Shares (Through Depositary Receipt
Mechanism) Scheme, 1993", and 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. The
policy for ECB is also applicable to FCCBs. The issue of
FCCBs are also required to adhere to the provisions of
Notification FEMA No. 120/RB-2004 dated July 7, 2004 as
amended from time to time.
(c) ECB can be accessed under two routes,
viz., (i) Automatic Route outlined in Paragraph I (A)
and (ii) Approval Route outlined in paragraph I (B).
(d) ECB for investment in real sector -
industrial sector, especially infrastructure sector-in
India, are under Automatic Route, i.e. do not require
RBI/Government approval. In case of doubt as regards
eligibility to access Automatic Route, applicants may
take recourse to the Approval Route.
I. (A) AUTOMATIC ROUTE (i) Eligible borrowers
(a) Corporates (registered under the companies Act
except financial intermediaries (such as banks,
financial institutions (FIs), housing fnance companies
and NBFCs) are eligible to raise ECB. Individuals,
Trusts and Non-
Profit making Organisations are not eligible to raise
(b) Units in Special Economic Zones (SEZ) are allowed to
raise ECB for their own requirement. However, they
cannot transfer or on-lend ECB funds to sister concerns
or any unit in the Domestic Tariff Area.
(ii) Recognised lenders
Borrowers can raise ECB from internationally recognised
sources such as (i) international banks, (ii)
international capital markets, (iii) multilateral
financial institutions (such as IFC, ADB, CDC, etc.,),
(iv) export credit agencies, (v) suppliers of
equipment,(vi) foreign collaborators and (vii) foreign
equity holders (other than erstwhile OCBs). A "foreign
equity holder' to be eligible as "recognized lender'
under the automatic route would require minimum holding
of equity in the borrower company as set out below:
(i) For ECB up to USD 5 million - minimum equity of 25
per cent held directly by the lender.
(ii) For ECB more than USD 5 million - minimum equity of
25 per cent held directly by the lender and debt-equity
ratio not exceeding 4:1 (i.e. the proposed ECB not
exceeding four times the direct foreign equity holding).
(iii) Amount and Maturity
(a) The maximum amount of ECB which can be raised by a
corporate is USD 500 million or equivalent during a
(b) ECB up to USD 20 million or equivalent in a
financial year with minimum average maturity of three
(c) ECB above USD 20 million and upto USD 500 million or
equivalent with a minimum average maturity average
maturity of five years.
(d) ECB upto USD 20 million can have call / put option
provided the minimum average maturity of three years is
complied with before exercising call / put option.
(iv). All-in-cost ceilings
All-in-cost includes rate of interest, other fees and
expenses in foreign currency except commitment fee,
pre-payment fee, and fees payable in Indian Rupees.
Moreover, the payment of withholding tax in Indian
Rupees is excluded for calculating the all-in-cost. The
all-in-cost ceilings for ECB are reviewed from time to
time. The following ceilings are valid till reviewed:
Average Maturity Period All-in-cost Ceilings over 6
Three years and upto five years 200 basis points
More than five years 350 basis points
* for the respective currency of borrowing or applicable
(a) Investment e.g. import of capital goods (as
classified by DGFT in the Foreign Trade Policy), by new
or existing production units, in real sector- industrial
sector including small and medium enterprises (SME) and
infrastructure sector - in India. Infrastructure sector
is defined as (i) power, (ii) telecommunication, (iii)
railways, (iv) road including bridges, (v) sea port and
airport, (vi) industrial parks, and (vii) urban
infrastructure (water supply, sanitation and sewage
(b) Overseas direct investment in Joint Ventures (JV) /
Wholly Owned Subsidiaries (WOS) subject to the existing
guidelines on Indian Direct Investment in JV/WOS abroad.
vi) Ends-users not permitted
(a) Utilisation of ECB proceeds is not permitted for
on-lending or investment in capital market or acquiring
a company (or a part thereof) in India by a corporate,
(b) Utilisation of ECB proceeds is not permitted in real
(c) Utilisation of ECB proceeds is not permitted for
working capital, general corporate purpose and repayment
of existing Rupee loans.
Issuance of guarantee, standby letter of credit, letter
of undertaking or letter of comfort by banks, Financial
Institutions and Non-Banking Financial Companies (NBFCs)
relating to ECB is not permitted.
The choice of security to be provided to the lender /
supplier is lefit to the borrower. However, creation of
charge over immovable assets and financial securities,
such as shares, in favour of the overseas lender is
subject to Regulation 8 of Notification No. FEMA 21/RB-
2000 dated May 3, 2000 and Regulation 3 of Notification
No. FEMA 20/RB- 2000 dated May 3, 2000 respectively, as
amended from time to time.
ix) Parking of ECB proceed overseas
ECB raised for foreign currency expenditure for
permissible end-uses shall be parked overseas and not to
be remitted to India. ECB proceeds parked overseas can
be invested in the following liquid assets (a) deposits
or Certifcate of Deposit or other products offered by
banks rated not less than AA (-) by Standard and Poor /
Fitch IBCA or Aa3 by Moody's; (b) deposits with overseas
branch of an Authorised Dealer in India; and (c)
Treasury bills and other monetary instruments of one
year maturity having minimum rating as indicated above.
The funds should be invested in such a way that the
investments can be liquidated as and when funds are
required by the borrower in India.
Prepayment of ECB upto USD 500 million may be allowed by
AD banks without prior approval of RBI subject to
compliance with the stipulated minimum average maturity
period as applicable to the loan.
xi) Refinancing of an existing ECB
The existing ECB may be refinanced by raising a fresh
ECB subject to the condition that the fresh ECB is
raised at a lower all-in-cost and the outstanding
maturity of the original ECB is Maintained.
xii) Debt Servicing
The designated Authorised Dealer (AD bank) has the
general permission to make remittances of installments
of principal, interest and other charges in conformity
with ECB guidelines issued by Government / Reserve Bank
of India from time to time.
Borrowers may enter into loan agreement complying with
ECB guidelines with recognised lender for raising ECB
under Automatic Route without prior approval of RBI. The
borrower must obtain a Loan Registration Number (LRN)
from the Reserve Bank of India before drawing down the
ECB. The procedure for obtaining LRN is detailed in para
II (i) (b).