EXTERNAL COMMERCIAL

BORROWING
PRESENTATION BY
K.RAMASUBRAMANIAN

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 STATUTORY PROVISIONS
• SECTION 6(3)(d) OF FEMA1999
• SECTION 6 OF NOTIFICATION NO
FEMA 3 DATED 3-5-2000 AND
AMENDED FROM TIME TO TIME
• SECTION 5(3) OF ABOVE
NOTIFICATION-IMPORT CREDIT
• SEC6(2) PUTS CAP ON TOTAL ECB

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 CONTD.
• SCHEDULE TO NOTIFICATION
• PURPOSES AND ACTIVITIES
PERMITTED
• PROHIBITION OF ECB FUNDS IN
REALESTATE AND INVESTMENT IN
SHARES AND STOCKS

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PERMITTED ROUTES FOR ECB

• AUTOMATIC ROUTE

• APPROVAL ROUTE

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 AUTOMATIC ROUTE
• INVESTMENT IN REAL SECTOR
ESPECIALLY INFRASTRUCTURE
• NO PRIOR APPROVAL OF RBI/GOVT.
REQUIRED
• DOUBT ABOUT ELIGIBILITY PROCEED
TO APPROVAL ROUTE

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 ELIGIBLE BORROWERS
• CORPORATES UNDER THE
COMPANIES ACT
• INELIGIBLE CATEGORIES AS UNDER
• BANKS,FINANCIAL
INSTITUTIONS,NBFC’S,HFC’S,
• INDIVIDUALS,TRUSTS,NONPROFIT
ORGANAISATIPONS ARE NOT
ELIGIBLE

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• NGO’S ENGAGED IN MICRO FINANCE
ACTIVITIES ARE ELIGIBLE SUBJECT
TO:
• AT LEAST 3 YEARS OF BORROWING
RELATIONSHIP WITH AN A.D.
• A.D. SHOULD CERTIFY “FIT AND
PROPER” DUE DILIGENCE
CERTIFICATE ABOUT THE
MANAGEMENT OF THE NGO

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• RECOGNISED LENDERS

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 LENDERS
• INTERNATIONAL BANKS
• IFC,ADB,CDC ETC.MULTILATERALS
• EXPORT CREDIT AGENCIES
• SUPPLIERS OF
EQUIPMENTS,FOREIGN
COLLABORATORS AND FOREIGN
EQUITY HOLDERS,OVERSEAS
ORGANISATION LENDERS TO NGO’S

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• AMOUNT AND MATURITY
OF ECB

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 QUANTUM AND DURATION
• UPTO $20 mn-------- MIN.AVG.MATURITY
OF THREE YEARS

$20mn TO $500mn-----Min.avg.mty 5years

Maximum amount in a financial year$500mn

ECB upto$20mn can have call/put option AFTER 3

YEARS

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ALL IN COST CEILINGS

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 All-in-cost CEILING
• All-in-cost includes interest, fees, expenses in
foreign currency, except commitment fee, pre
payment fee, withholding taxes and all fees
payable in INRS
• MAMP All-in-cost LIBOR+
of respective currency
• 3 to 5 years 200bps
• Above 5 years 350bps

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END USE CRITERIA

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 END-USE
• Import of capital goods
• New projects
• Modernization/ expansion of existing
projects in real sector including
infrastructure, S.M.E’s
• Infrastructure means sectors in Power,
Telecom, Railways, roads and bridges,
ports, industrial parks, water supply,
sanitation,sewerage
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 Enduse-contd.

• OVERSEAS DIRECT INVESTMENT IN

J.V / W.O.S SUBJECT TO FEMA 120
• ACQUISITION OF SHARES IN
DISINVESTMENT PROCESS-FIRST
STAGE AND MANDATORY 2 STAGE

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• NGO’S CAN USE FOR MICRO
FINANCELENDING TO SELF HELP
GROUPS
• BONAFIDE MICRO CREDIT PURPOSES

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PROHIBITED USES

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 PROHIBITED AREAS OF END
USE
• ON-LENDING OR INVESTMENT IN CAPITAL
MARKET OR ACQUIRING A COY IN INDIA
• REAL ESTATE(EXCEPT DEVELOPMENT OF
INTEGRATED TOWNSHIP VIDE G.O.I. PRESS
NOTE 3 DATED 4-1-2002
• WORKING CAPITAL
• GENERAL CORPORATE PURPOSE
• REPAYMENT OF EXISTING RUPEE LOANS

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• GUARANTEES

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 GUARANTEES
• PROHIBITED
• GUARANTEES,LETTER OF
CREDIT,STANDBY L/C
UNDERTAKING,COMFORT LETTER
• PROHIBITION APPLIES TO BANKS,FI’S,
NBFC’S

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SECURITY

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 SECURITY

• CHOICE OF BORROWER AND LENDER

• COMPLIANCE WITH REG.8 FEMA21

AND REG.3 FEMA20, THAT IS PRIOR
APPROVAL OF RBI REQUIRED FOR
CREATION OF CHARGE IMMOVABLE
PROPERTIES AND SHARES IN INDIA
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 PARKING OF FUNDS
• COMPULSORY TO PARK OUTSIDE PENDING
ACTUAL REQUIREMENT IN INDIA
• PARKED FUNDS CAN BE INVESTED IN
PRODUCTS OF BANKS RATED AA- BY S&P
OR Aa 3 BY MOODY’S
• DEPOSITS WITH OVERSEAS BRANCHES OF
A.D
• TREASURY BILLS OF 1 YEAR MATURITY
• LIQUIDTY TO MEET THE USE IN INDIA

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 PRE PAYMENT
• PRE PAYMENT UPTO US $200 mn
WITHOUT APPROVAL OF RBI AND
SUBJECT TO COMPLIANCE OF
MINIMUM AVG. MATURITY

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 REFINANCING
EXISTING ECB

• ALLOWED SUBJECT TO :
• LOWER COST THAN THE PRESENT
ECB AND
• OUTSTANDING MATURITY OF
ORIGINAL ECB IS MAINTAINED

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 DEBT
SERVICING

• A.D. HAS GENERAL

PERMISSION TO REMIT
INTEREST,INSTALMENTS OF
PRICIPAL,PERMISSIBLE
CHARGES

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 PROCEDURE

• ENTER INTO LOAN AGREEMENT

• APPROACH A.D.
• SUBMIT FORM 83
• COMPLY WITH REPORTIG IN ECB 2
OBTAIN LOAN REGISTRATION
NUMBERS

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 RESPONSIBILITY

• PRIMARY THE BORROWER FOR ALL

COMPLIANCES

• A.D AT THE TIME OF CERTIFICATION

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• APPROVAL ROUTE

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 ELIGIBLE BORROWERS
• F.I.’S LIKE
IDFC,I.L.&F.S,P.F.C.,P.T.C,IRCON,EXIM
BANK ONLY ON CASE TO CASE BASIS
• BANKS PARTICIPATED IN
TEXTILE/STEEL RESTRUCTURE
SCHEME OF G.O.I.
• CASES FALLING OUTSIDE AUTO
ROUTE

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 LENDERS

• SAME AS AUTO ROUTE

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 END USE

• SAME AS AUTO ROUTE

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 GUARANTEES
• GENERALLY NOT PERMITTED.

• IN THE CASE OF SME’S CAN BE

CONSIDERED BY RBI ON MERITS-
PRUDENTIAL NORMS-CASE BY CASE
APPROACH

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• SECURITY-PARKING OF FUNDS
ABROAD-PREPAYMENT UPTO$100mn
REFINANCING OF EXISTING ECB,DEBT
SERVICING
• ALL THE ABOVE AS APPLICABLE IN
AUTO ROUTE

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 PROCEDURE
• APPLY TO RBI IN FORM ECB 2 THRU
A.D. ALONG WITH NECESSARY
DOCUMENTS
• EMPOWERED COMMITTEE CAN TAKE
A DECISION ON APPLICATION

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 REPORTING
• COPY OF LOAN AGREEMENT NEED
NOT BE SUBMITTED TO RBI
• SUBMIT FORM 83 TO DESACS,MUMBAI
• OBTAIN LOAN REGISTRATION
NUMBER AND THEN DRAW THE ECB
• SUBMIT ECB 2 MONTHLY DULY
CERTIFIED BY DESIGNATED A.D.

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TRADE CREDITS

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• CREDITS FOR IMPORTS
• CREDIT PROVIDED BY OVERSEAS
SUPPLIER,BANK,FIN.INST.
• PERIOD-ORIGINAL MATURITY- LESS THAN 3
YEARS
• SUPPLIERS CREDIT OR BUYERS CREDIT
• BUYERS CREDIT AND SUPPLIERS CREDIT
OF MORE THAN 3 YEARS WILL BE TREARED
AS ECB

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 QUANTUM AND MATURITY
PERIOD
• IMPORT OF ITEMS ALLOWED UNDER EXIM
POLICY A.D.’S CAN ALLOW UPTO $ 20 mn
UPTO A PERIOD OF ONE YEAR(FROM DATE
OF SHIPMENT)
• FOR IMPORT OF CAPITAL GOODS A.D.’S
CAN ALLOW UPTO $20mn WITH MATURITY
OF OVER 1 YEAR UPTO 3 YEARS
• NO ROLL OVERS/EXTENSION CAN BE
ALLOWED BEYOND PERMISSIBLE PERIODS
• Amounts above $20 mn apply to RBI

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 ALL-IN-COST CEILING
• UPTO ONE YEAR LIBOR+50 BPS
• 1 TO 3 YEARS LIBOR+125 BPS

• ALL-IN- COST INCLUDES ARRANGER

FEES,UPFRONT FEES,MNGMT
FEES,HANDLING/PROCESSING
CHARGES,OUT OF POCKET AND
LEGAL EXPENSES

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 GUARANTEES
• A.D.’S SHOULD TAKE PRIOR
APPROVAL OF REGIONAL OFFICES OF
RBI FOR ISSUE OF
GUARANTEES,LETTER OF COMFORT
ETC

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 REPORTING TO RBI
• PARTICULARS OF ECB IN FORM T. C
TO BE REPORTED TO DEAP, MUMBAI
• MONTHLY-BEFORE 10 TH OF
SUCCEEDING MONTH
• EACH TRADE CREDIT TO BE GIVEN A
UNIQUE IDENTIFICATION NUMBER BY
A.D.

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• THANK YOU

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