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External Commercial Borrowings

External Commercial Borrowings



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Published by asvinisingh

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Published by: asvinisingh on Dec 01, 2009
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‘External Commercial Borrowings’INDEX
1.External commercial borrowings.2.Various form of external commercial borrowings.3.Importance.4.How it works.5.Flow of external commercial borrowings.6.Why company go for external commercial borrowings.7.Planning the external commercial borrowings right.8.How it help company to mange it finance.9.Guidelines of RBI.10.Recent trends11.Company profile12.Why company raise external commercial borrowings.
How much company raise external commercial borrowings.
What was currency rate at the time of external commercial borrowings.15.Current financial position of company.16.Bank profile.
Why does bank’s give external commercial borrowings.18.Things they need to consider while giving external commercial borrowings.
Question nair 20.Conclusion21.bibliography
External Commercial borrowing (ECB) is a term used to refer tocommercial loans availed from non-resident lenders with aminimum average maturity of 3 years in the form of bank loans,buyers credit, suppliers credit, securitized instruments (e.g.floating rate notes and fixed rate bonds).A company is free to raise ECB from any internationallyrecognized source such as banks, export credit agencies,suppliers of equipment, foreign collaborators, foreign equity-holders, international capital markets etc. However, offers fromunrecognized sources are not entertained.ECB can be accessed under two routes -:
Automatic Route and
Approval Route.Under the Automatic Route, the approval of Reserve Bank of India (RBI) or the Governments approval are not required.However, in case of doubt regarding eligibility under theAutomatic Route, applicants may take recourse to the ApprovalRoute. The maximum amount of ECB that can be raised by aneligible borrower under the Automatic Route during one financialyear is USD 500 million. NGOs engaged in micro finance activitieshave been permitted to raise ECB up to USD 5 million during afinancial year for permitted end-use.
 The ECBs route provides an Indian company with the foreigncurrency funds that may not be available in India; the cost of funds at times works out to be cheaper as compared to the costof rupee funds and the availability of the funds from theInternational market is huge compared to the domestic market.Moreover corporates can raise a large amount of funds dependingon the risk perception of the International market. Corporates(registered under the Companies Act except financialintermediaries (such as banks, financial institutions (FIs), housingfinance companies and NBFCs) are eligible to raise ECB under theautomatic route. However Individuals, Trusts and Non-Profitmaking Organizations are not eligible to raise ECB. The success of Indias debt management policy is reflected in aperceptible improvement in various external debt indicators. Theexternal debt to GDP ratio which is an indicator of an economysdebt servicing capability, showed a steady improvement,dropping to 17.4 per cent in March 2005 as compared to 38.7 percent in end-March, 1992.It is noteworthy to mention that debtowed to the International Monetary Fund (IMF) was fullyextinguished by 2000-01.ECBs can be used as a borrowing meansfor any purpose (rupee-related expenditure as well as imports)except for investment in stock market and speculation in realestate. ECB is a source of finance for Indian corporate, small andmedium enterprise, Multi-state cooperative societies and non-governmental organizations for expansion of existing capacity aswell as for fresh investment.External Commercial Borrowing can be raised only forinvestments such as import of capital goods (as classified byDGFT in the Foreign Trade Policy), new projects,modernization/expansion of existing production units in theindustrial sector including small and medium enterprises andinfrastructure sector - in India. Infrastructure sector is defined aspower, telecommunication, railways, road including bridges, seaport and airport industrial parks and urban infrastructure (watersupply, sanitation and sewage projects). ECB proceeds can alsobe utilized for overseas direct investment in Joint Ventures /Wholly Owned overseas subsidiaries subject to the existing

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