External

Commercial
Borrowing
Team:- Innovators
ASHOK ROOPAK RATHISH RAVISH PREM BHARATH SRUTHI KANDAVALLI

ECB
A source of funds for financing expansion of existing capacity and for fresh investment out of territory

External Commercial Borrowings (ECB) refer to commercial loans availed from nonresident lenders

ECB includes:
commercial bank loans

buyers credit
suppliers credit securitized instruments such as floating rate notes fixed rate bonds credit from official export credit agencies,

ECB includes:
Commercial borrowings from the private sector Window of multilateral financial institutions such as IFC, ADB, AFIC, CDC etc. Investment by Foreign Institutional Investors (FIIs) in dedicated debt funds

Why ECB
Scarcity of fund in domestic market

Cheaper than domestic debts

Regulation
Clause (d) of sub-section 3 of section 6 of the Foreign Exchange Management Act, 1999 (FEMA)

With section 6 of Notification No. FEMA 3 / 2000-RB dated May 3, 2000 (amended)

Policy
Permitted by the Government as a source of finance for Corporate to expand their existing capacity & for fresh investment An annual cap or ceiling on access to ECB, consistent with prudent debt management

Greater priority for projects in the infrastructure, Power, oil, telecom, railways, Roads & Bridges, Ports, Industrial parks, urban Infrastructure & export sector.

Ways of raising ECB

Automatic route

Approval route

Automatic Route
ECB for investment in real sector industrial sector, especially infrastructure sector-in India, are under Automatic Route, i.e. do not require RBI permission Government approval. In case of doubt as regards eligibility to access Automatic Route, applicants may take recourse to the Approval Route.

Eligible Borrowers
Corporate (registered under the Companies Act except financial intermediaries) Units in Special Economic Zones (SEZ) are allowed to raise ECB for their own requirement. Individuals, Trusts and Non-Profit making organizations are not eligible to raise ECB.

Recognized Lenders
International banks International capital markets Multilateral financial institutions (IFC, ADB, CDC) Export credit agencies

Suppliers of equipment
Foreign collaborators Foreign equity holders

Utilization
Import of capital goods (as classified by DGFT in the Foreign Trade Policy), by new or existing production units, in real sector - industrial sector SME and infrastructure sector Power, Telecommunication, Railways, road including bridges, sea port and airport, industrial parks, urban infrastructure (water supply, sanitation and sewage projects) Overseas direct investment in Joint Ventures (JV)/Wholly Owned Subsidiaries (WOS)

Restricted Areas
Utilization of ECB is not permitted for onlending or investment in capital market Utilization of ECB is not permitted in real estate

Utilization of ECB is not permitted for working capital, general corporate purpose and repayment of existing Rupee loans.

Procedure
No prior approval of RBI is required The borrower must obtain a Loan Registration Number (LRN) from RBI before drawing down the ECB. The procedure for obtaining LRN is detailed in para II (i) (b). of FEMA

Approval

Route

Eligible Borrowers
FIs dealing exclusively with infrastructure or export finance, Power Finance Corporation, Power Trading Corporation, IRCON and EXIM Bank are considered on a case by case basis. Banks & FIs which had participated in the textile or steel sector restructuring package as approved by the Government are permitted .

Eligible Borrowers
Corporate in services sector viz. hotels, hospitals and software companies can avail ECB for import of capital goods Multi-State Co-operative Societies engaged in manufacturing activity . Corporate engaged in industrial sector and infrastructure sector in India.

NGOs engaged in micro finance activities are eligible to avail ECB for Rupee expenditure for permissible end-uses.

Recognized Lenders
ECBs can be raise from international sources such as (i) international banks (ii) international capital markets (iii) multilateral financial institutions (such as IFC, ADB, CDC

(iv) export credit agencies

(v) suppliers' of equipment (vi) foreign collaborators

(vii)Foreign equity holders

Utilization
Power, Telecommunication, Railways, road including bridges, sea port and airport, industrial parks, urban infrastructure (water supply, sanitation and sewage projects) Overseas direct investment in Joint Ventures (JV)/Wholly Owned Subsidiaries (WOS)

Import of capital goods by corporate in the service sector, viz., hotels, hospitals and software companies.

Restricted Areas
On-lending or investment in capital market or acquiring a company Real estate For working capital, general corporate purpose and repayment of existing Rupee loans.

Refinancing
The fresh ECB is raised at a lower cost than the existing

Maturity of the original ECB is maintained.

Procedure
No prior approval of RBI is required The borrower must obtain a Loan Registration Number (LRN) from RBI before drawing down the ECB. The procedure for obtaining LRN is detailed in para II (i) (b). of FEMA

Recent Developments - ECB

Minimum Average Maturity: ECB upto USD 500 million per borrower per financial year is permitted for rupee expenditure and/ or foreign currency expenditure for permissible end-uses under the automatic route.
Parking of ECB proceeds: Flexibility to either keep their ECB proceeds offshore or keep it with the overseas branches/ subsidiaries of Indian banks abroad or to remit these funds to India to credit to their Rupee accounts with banks in India, pending utilization for permissible enduses. Definition of Infrastructure expanded to include, power, telecommunication, mining exploration and refining.