external commercial borrowings

(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) 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 ECB.

(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 financial year.

(b) ECB up to USD 20 million or equivalent in a financial year with minimum average maturity of three years.

(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 month LIBOR*

Three years and upto five years 200 basis points

More than five years 350 basis points

* for the respective currency of borrowing or applicable benchmark

(v) End-use

(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 projects);

(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 estate,

(c) Utilisation of ECB proceeds is not permitted for working capital, general corporate purpose and repayment of existing Rupee loans.

vii) Guarantees

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.

viii) Security

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.

x) Prepayment

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.

xiii) Procedure

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).