Primer On ECBs

Primer
Primer on External Commercial

Borrowings (ECBs)
Vinita Nair
vinita@vinodkothari.com
Vignesh Iyer
vignesh@vinodkothari.com
Arundhuthi Bose
arundhuthi@vinodkothari.com
M/s Vinod Kothari & Company

As updated on July 12, 2016
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Disclaimer:
The following questions are framed by us, and do not represent or necessarily match with
views of regulatory authorities. The questions/answers are purely academic, and are not based
on facts/circumstances of any particular case. Neither are they intended to be relied upon for
any particular transaction or situation. Please do consult your counsel before deciding to rely
on the following. For contacting authors of the primer below, kindly use email.
Primer on External Commercial Borrowings (ECBs)
1. How does ECB compare with domestic borrowings in terms of costs? 4

2. What is the key difference between ECB and FDI? 4
3. What all instruments of borrowings /debt instruments are covered by the
definition of “ECBs”? 5
4. What is the key difference between automatic route and approval route for
ECBs? 6
5. What is the recent amendment made in ECB? 6
6. What impact will the revised framework have on the ECBs already availed under
the erstwhile framework? 6
7. What will be the nature of ECB that can be availed? 7
8. What are the End-use restrictions in case of ECB? 8
9. Is ECB allowed for working capital or general corporate purposes? 10
10. Is ECB allowed for capital expenditure? 10
11. What is the definition of infrastructure under extant ECB guidelines? 11
12. Can ECB be availed for acquisition of shares under the Government’s
disinvestment programme of PSUs? 12
13. Can ECB be availed by Holding Companies/ Core Investment Companies? 12
14. Can ECB be availed for repaying rupee loans taken by the company? 13
15. Is it only that Corporates are allowed to accept ECBs or can Non-Corporate
Bodies also accept ECBs? 16
16. Who are the Borrowers eligible to avail ECB? 16
17. Can Entities engaged in manufacturing sector avail ECBs? 17
18. Can Corporate engaged in services sector avail ECBs under automatic route: 18
19. Can NBFCs avail of ECBs? 18
20. Can HFCs avail ECBs? 19
21. Can Infrastructure Finance Companies (IFCs) avail ECBs? 20
22. Can builders/real estate companies avail ECBs? 21
23. What needs to be done for a builder to avail ECBs through the National Housing
Bank? 22
24. Who can be the lender for an ECB? 23
25. Is it possible for a foreign equity holder to provide ECBs to the company in which
such equity holder holds investment? 24
26. What is the meaning of the debt/equity ratio in case of foreign equity holders? 25
27. Whether availing of operating lease by an Indian Entity an ECB? 25
28. Can an Operating Leasing or Asset Renting entity avail ECBs? 27
29. Is a financial lease also treated as ECB? 27

30. Can securitisation be treated as ECB? 27
31. What is the procedure for getting ECBs under automatic route? 27
32. What is the procedure for getting ECBs under approval route? 28
33. Is it necessary that ECBs must be full hedged? 29
34. What are the restrictions on all-in cost of ECBs? What all is included in all-in
costs? 29
35. What are the maturity restrictions on ECBs? 30
36. The maturity restrictions talk about minimum maturity – is there anything on
maximum maturity? 31
37. What is Take-out Finance and who are allowed to avail the facility of take-out
finance? 31
38. What are the options available for repayment of ECBs? 32
39. What are the reporting requirements in case of conversion of ECB into equity? 32
40. Is prepayment allowed in case of ECB? 33
41. Can ECB be refinanced by raising a fresh ECB or be rescheduled? 33
42. What procedure needs to be followed in case of change in the terms and
conditions of the ECB? 33
43. Can Corporate, which have violated the extant ECB policy and are under
investigation by the Reserve Bank, avail of ECB? 37
44. If I go for ECBs, should I hedge myself, or leave it unhedged? 37
45. How about accounting for forex losses in ECBs? 37
1. How does ECB compare with domestic borrowings in terms of costs?

 The evaluation of cost of domestic borrowings versus ECBs must be done after a
careful comparison of the ECB cost, adding together the cost of hedging or the
cost due to foreign exchange losses. The decision primarily depends on the
prevailing interest rate gaps between – INR loans and forex loans. There are
situations when the gap is quite large, and even after considering the cost of
hedge, an ECB may make sense. However, ECB option is not necessarily cheaper.
Hence, please do consult your financial advisors to advise you on the cost
comparison.
 If you leave ECB costs unhedged, you may be taking a substantial risk on forex
losses. There is a currency risk involved in ECBs. A depreciating rupee will prove
burdensome at the time of repayment of loan. Unless you have a natural hedge,
there may be periods where this may cause a significant strain on your
financials.
2. What is the key difference between ECB and FDI?

Parameters ECB FDI
Meaning ECBs are commercial loans raised by FDI‘ means investment by non-
eligible resident entities from recognised resident entity/ person resident
non-resident entities and should conform to outside India in the capital of an
parameters such as minimum maturity, Indian company under Schedule 1 of
permitted and non-permitted end-uses, Foreign Exchange Management
maximum all-in-cost ceiling, etc, as (Transfer or Issue of Security by a
stipulated in the RBI Master Circular on Person Resident Outside India)
External Commercial Borrowings and Regulations 2000
trade credits, issued from time to time,
with a minimum average maturity of 3 /5
/ 10 years.
Governed ECBs are governed and included in the Consolidated FDI Policy, 2012 and
by following three Regulations framed under Foreign Exchange Management Act,
FEMA: 1999 & Foreign Exchange
 Foreign Exchange Management Management (Transfer or Issue of
Act, 1999 Security by a Person Resident
 Foreign Exchange Management Outside India) Regulations 2000
(Borrowing or Lending in Foreign dated May 3, 2000 as amended from
Exchange) Regulations, 2000, time to time.
dated May 3, 2000 as amended
from time to time.
 Foreign Exchange Management
Parameters ECB FDI

(Transfer or Issue of any Foreign
Security) Regulations, 2004 dated
July 7, 2004 as amended from time
to time.
 Foreign Exchange Management
(Guarantees) Regulations, 2000
dated May 3, 2000 as amended
from time to time.
as provided under RBI Master Directions.1
End-use Refer Question No. 8 In case of Issue of shares by Indian
restrictions Companies under FCCB/ADR/GDRs
there is a ban on
deployment/investment of such
funds in real estate or the stock
market.
Instruments Refer Question No. 3 Equity shares, fully, compulsorily
and mandatorily convertible
debentures and fully, compulsorily
and mandatorily convertible
preference shares.
3. What all instruments of borrowings /debt instruments are covered by the

definition of “ECBs”?
 Commercial loans in the form of bank loans, buyers’ credit 2, suppliers’ credit3,
securitized instruments.
 Foreign Currency Convertible Bonds
 Financial Lease
 Non- convertible, optionally convertible or partially convertible Preference
Shares.
 Foreign Currency Exchangeable Bond.4
1
https://www.rbi.org.in/Scripts/BS_ViewMasterDirections.aspx?id=10204
2 Buyer’s Credit refers to loans for payment of imports in to India arranged by the importer from a bank
or financial institution for original maturity of minimum three years.
3 Supplier’s Credit refers to credit for imports into India extended by the overseas supplier.
4 means a bond expressed in foreign currency issued by an Issuing Company and subscribed to by a
person who is a resident outside India, in foreign currency and exchangeable into equity share of
another company, to be called the Offered Company. The principal and interest of the FCEB is payable
in foreign currency. The FCEB may be denominated in any freely convertible foreign currency.
4. What is the key difference between automatic route and approval route for
ECBs?
 Automatic Route applies to the borrowings made by a person resident in India
in accordance with the provisions of the Automatic Route Scheme as specified in
Schedule I of the Foreign Exchange Management (Borrowing or Lending in
Foreign Exchange) Regulations, 2000 as amended from time to time.
 Approval Route applies to the foreign currency loans raised of the nature or for
the purposes as specified in Schedule II of the Foreign Exchange Management
(Borrowing or Lending in Foreign Exchange) Regulations, 2000 as amended
from time to time by the person resident in India and who satisfies the eligibility
and other conditions specified in that Schedule.
5. What is the recent amendment made in ECB?

The recent amendments made in the revised ECB framework encompass various
elements some of which are:-
 Inclusion of financial lease as a forms of borrowings
 Relaxing rules for NBFCs
 Segmenting the Minimum Average Maturity (MAM) in three tracks - Track I,
Track II, Track III
 A more liberal approach, with fewer restrictions on end uses, higher all-in-cost
ceiling, etc. for long term foreign currency borrowings as the extended term
makes repayments more sustainable and also minimizes roll-over risks for the
borrower;
 A more liberal regime for INR denominated ECBs where the currency risk is
borne by the lender;
 Expansion of the list of overseas lenders to include long-term lenders, such as,
Insurance Companies, Pension Funds, Sovereign Wealth Funds;
 Only a small negative list of end-use restrictions applicable in case of long-term
ECB and INR denominated ECB;
 Alignment of the list of infrastructure entities eligible for ECB with the
Harmonised List of the Government of India.
6. What impact will the revised framework have on the ECBs already availed
under the erstwhile framework?
Entities raising ECB under extant framework can raise the said loans by March
31, 2016, provided the agreement in respect of the loan is already signed by the
date the new framework comes into effect.
For raising of ECB under the following carve outs, the borrowers will, however,
have time up to March 31, 2016 to sign the loan agreement and obtain the Loan
Registration Number (LRN) from the Reserve Bank by this date:
i. ECB facility for working capital by airlines companies;

ii. ECB facility for consistent foreign exchange earners under the USD 10
billion Scheme; and
iii. ECB facility for low cost affordable housing projects (low cost affordable
housing projects as defined in the extant Foreign Direct Investment
policy)
7. What will be the nature of ECB that can be availed?
The nature of ECB that can be availed along with the minimum average maturity
will be as under:
Particulars Track I Track II Track III

Nature of Medium term Long term foreign Indian Rupee
ECB foreign currency currency denominated ECB
denominated ECB denominated ECB with MAM of 3/5
with Minimum with MAM of 10 years.
Average Maturity years.
(MAM) of 3/5
years.
Minimum i. 3 years or more 10 years or more i. 3 years or more
Average for ECB upto USD irrespective of the for ECB upto USD
Maturity 50 million or its amount. 50 million or its
equivalent. equivalent.
ii. 5 years or more ii. 5 years or more
for ECB beyond for ECB beyond USD
USD 50 million or 50 million or its
its equivalent. equivalent.
For FCCBs/FCEBs
the MAM will be 5
years irrespective
of the amount
borrowed5
For Infrastructure
5
https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=10314&Mode=0

sector/ NBFC-
IFC/NBFC-
AFC/CICs/Holding
Companies
8. What are the End-use restrictions in case of ECB?

Permitted 1. ECB proceeds can be utilised for 1. The ECB proceeds NBFCs can use ECB
end use capital expenditure in the form of: can be used for all proceeds for:
i. Import of capital goods including purposes excluding a. On-lending to the
payment towards import of services, the following: infrastructure sector;
technical know-how and license fees, i. Real estate activities b. providing
provided the same are part of these ii. Investing in capital hypothecated loans
capital goods; market to domestic entities
ii. Local sourcing of capital goods; iii. Using the proceeds for acquisition of
iii. New project; for equity investment capital
iv. Modernisation /expansion of existing domestically; goods/equipments;
units; iv. On-lending to other and
v. Overseas direct investment in Joint entities with any of the
ventures (JV)/ Wholly owned above objectives;
subsidiaries (WOS); v. Purchase of land.
c. providing capital
vi. Acquisition of shares of public sector goods/equipment to
undertakings at any stage of domestic entities by
disinvestment under the disinvestment 2. Holding companies way of lease and
programme of the Government of India; can also use ECB hire-purchases
vii. Refinancing of existing trade credit
proceeds for providing
raised for import of capital goods; loans to their
viii. Payment of capital goods already infrastructure SPVs. 2. Developers of
shipped / imported but unpaid; SEZs/ NMIZs can
ix. Refinancing of existing ECB provided
raise ECB only for
the residual maturity is not reduced.
providing
infrastructure
facilities within SEZ/
2. SIDBI can raise ECB only for the NMIZ.
purpose of on lending to the borrowers
in the Micro, Small and Medium
Enterprises (MSME sector), where
3. NBFCs-MFI, other
MSME sector is as defined under the
eligible MFIs, NGOs

MSME Development Act, 2006, as and not for profit
amended from time to time. # companies registered
under the Companies
Act, 1956/2013 can
3. Units of SEZs can raise ECB only for raise ECB only for
their own requirements. # on-lending to self-
help groups or for
micro-credit or for
bonafide micro
4. Shipping and airlines companies can
finance activity
raise ECB only for import of vessels and
including capacity
aircrafts respectively. #
building.
4. For other eligible
entities under this
5. ECB proceeds can be used for general track, the ECB
corporate purpose (including working proceeds can be used
capital) provided the ECB is raised from for all purposes
the direct / indirect equity holder or excluding the
from a group company for a minimum following:
average maturity of 5 years. i. Real estate
activities
ii. Investing in capital
6. ECBs for the following purposes will market
be considered under the approval iii. Using the
route#: proceeds for equity
i. Import of second hand goods as per the investment
Director General of Foreign Trade domestically;
(DGFT) guidelines; iv. On-lending to
ii. On-lending by Exim Bank. other entities with
any of the above
7. ECBs raised by Holding Companies objectives;
and CICs shall be used only for on- v. Purchase of land
lending to infrastructure Special Purpose
Vehicles (SPVs).#6
8. ECBs raised by NBFC-IFCs and NBFC-

HFCs is to be used only for the purpose
of financing infrastructure.7
# The respective conditions will be applicable for all three tracks.
6
7
9. Is ECB allowed for working capital or general corporate purposes?
 Under the revised ECB framework, ECBs raised under Track I can used for
general corporate purpose (including working capital) provided the ECB is
raised from the direct / indirect equity holder or from a group company for a
minimum average maturity of 5 years.
 Civil Aviation sector is allowed to obtain ECB for working capital, subject to the
approval from the Reserve Bank of India. The maximum ECB permissible to be
used for working capital is equal to the overall ECB ceiling, being USD one
billion for the entire civil aviation sector and USD 300 million for an individual
airline company. The ECB needs to be raised within 12 months from April 24,
2012 (date of issue of circular), however, RBI vide A. P. (DIR Series) Circular No.
116 dated June 25, 2013 has extended the scheme of availing ECB till December
31, 2013. Further, RBI vide A.P ( DIR Series) Circular No. 113 dated March 26,
2014 had extended the scheme of availing ECB till March 31, 2015. However, the
borrowing is subject to the restriction that such ECB liability needs to be
extinguished only out of the foreign exchange earnings of the borrowing
company.
 Airline companies registered under the Companies Act, 1956 and possessing
scheduled operator permit license from DGCA (Director General for Civil
Aviation) for passenger transportation are eligible to avail ECB for working
capital, with a minimum average maturity of 3 years, depending on their cash
flow, foreign exchange earnings and the capability to service the debt.
 Under the revised ECB framework, these entities can raise ECB under the
aforesaid carve-out upto March 31, 2016 by signing loan agreement and
obtaining Loan Registration Number (LRN) from RBI by this date.
10. Is ECB allowed for capital expenditure?
ECB proceeds raised under Track I needs to be utilized for capital expenditure in
the form of :
i. Import of capital goods including payment towards import of services,
technical know-how and license fees, provided the same are part of these
capital goods;
ii. Local sourcing of capital goods;
iii. New project;
iv. Modernisation /expansion of existing units;

v. Overseas direct investment in Joint ventures (JV)/ Wholly owned subsidiaries
(WOS);
vi. Acquisition of shares of public sector undertakings at any stage of
disinvestment under the disinvestment programme of the Government of
India;
vii. Refinancing of existing trade credit raised for import of capital goods;
viii. Payment of capital goods already shipped / imported but unpaid;
ix. Refinancing of existing ECB provided the residual maturity is not reduced.
 Proceeds raised under Track II and III also can be utilized for capex purpose.
11. What is the definition of infrastructure under extant ECB guidelines?
 For the purpose of raising ECB the definition of infrastructure will be as

provided under Harmonised Master List of Infrastructure sub-sectors and
Institutional Mechanism for its updation approved by Government of India
vide Notification F. No. 13/06/2009-INF dated March 27, 2012(as amended /
updated from time to time).
 The expanded infrastructure sector and sub-sectors for the purpose of ECB
include:
(a) Energy which will include (i) electricity generation, (ii) electricity
transmission, (iii) electricity distribution, (iv) oil pipelines, (v)
oil/gas/liquefied natural gas (LNG) storage facility (includes strategic
storage of crude oil) and (vi) gas pipelines (includes city gas distribution
network);
(b) Communication which will include (i) mobile telephony services /

companies providing cellular services, (ii) fixed network
telecommunication (includes optic fibre / cable networks which provide
broadband / internet) and (iii) telecommunication towers;
(c) Transport which will include (i) railways (railway track, tunnel, viaduct,
bridges and includes supporting terminal infrastructure such as loading /
unloading terminals, stations and buildings), (ii) roads and bridges, (iii)
ports, (iv) inland waterways, (v) airport ( including Maintenance, Repairs
and Overhaul8) and (vi) urban public transport (except rolling stock in
case of urban road transport);
(d) Water and sanitation which will include (i) water supply pipelines, (ii)
solid waste management, (iii) water treatment plants, (iv) sewage
projects (sewage collection, treatment and disposal system), (v) irrigation
(dams, channels, embankments, etc.) and (vi) storm water drainage
system;
(e) (i) mining, (ii) exploration and (iii) refining;
(f) Social and commercial infrastructure which will include (i) hospitals
(capital stock and includes medical colleges and para medical training
institutes), (ii) Hotel Sector which will include hotels with fixed capital
investment of Rs. 200 crore and above, convention centres with fixed
capital investment of Rs. 300 crore and above and three star or higher
category classified hotels located outside cities with population of more
than 1 million (fixed capital investment is excluding of land value), (iii)
common infrastructure for industrial parks, SEZs, tourism facilities, (iv)
fertilizer (capital investment), (v) post-harvest storage infrastructure for
agriculture and horticulture produce including cold storage, (vi) soil
testing laboratories and (vii) cold chain (includes cold room facility for
farm level pre-cooling, for preservation or storage or agriculture and
allied produce, marine products and meat.
(g) Through the notification RBI/2015-16/349 of A.P. (DIR Series) Circular

No.56, RBI inserted “Exploration, Mining and Refinery” sector in the list.
12. Can ECB be availed for acquisition of shares under the Government’s
disinvestment programme of PSUs?
 Yes, the same is a permitted end use under Track I, II and III.
13. Can ECB be availed by Holding Companies/ Core Investment Companies?
Under the revised ECB framework, Holding Companies and Core Investment
Companies are permitted to raise ECB under Track-I and Track II. The ECB availed is
subject to end use restrictions mentioned in Question 8. Also, for ECB raised by
8
Inserted vide AP (DIR Series) Circular No. 85 dated January 6, 2014
these entities under Track-I, the MAM will be 5 years and with 100% hedging. The
CICs and Holding Companies raising ECBs under Track –I also need to have a board
approved risk management policy. The AD-I category bank needs to ensure the
hedging requirement and file ECB-2 with regard to that. Moreover, the ECB raised
under Track-I by them have to be used only for on-lending to infrastructure SPVs.
14. Can ECB be availed for repaying rupee loans taken by the company?
 Permitted end use under Track II and Track III specify a negative list. The ECB
proceeds can be utilized for any purpose other than those specifically prohibited.
 All ECB loan agreements entered into before December 02, 2015 may continue
with the disbursement schedules as already provided in the loan agreements
without requiring any further consent from the RBI or any AD Category I bank.
For raising of ECB under the following carve outs, the borrowers will, however,
have time up to March 31, 2016 to sign the loan agreement and obtain the LRN
from the Reserve Bank by this date:
o ECB facility for working capital by airlines companies (refinancing of the
outstanding working capital Rupee loan(s) availed of from the domestic
banking system);
o ECB facility for consistent foreign exchange earners under the USD 10 billion
Scheme (can raise ECBs for repayment of outstanding Rupee loans availed of
for capital expenditure from the domestic banking system and/ or fresh
Rupee capital expenditure subject to below mentioned certain terms and
conditions);
 Indian Companies in the manufacturing and infrastructure sector
and as per A.P. (DIR Series) Circular No.78 dated January 21, 2013, Indian
Companies in the hotel sector (with a total project cost of INR 250
crore or more) who were consistent foreign exchange earners during
the past three financial years and not in default list/caution list of the
Reserve Bank of India can avail of ECBs, subject to overall limit of USD
10 billion and approval of the Reserve Bank of India, for repayment of
rupee loans availed of for capital expenditure from the domestic banking
systems which are still outstanding and/or fresh Rupee capital
expenditure. The maximum permissible ECB that could be availed of by
an individual company will be limited to 75 % of the average annual
export earnings realized during the past 3 financial years or 50% of the
average annual export earnings realised during past 3 financial years,
whichever is higher. However, the borrowing is subject to the restriction
that such ECB liability needs to be extinguished only out of the foreign
exchange earnings of the borrowing company.
 In furtherance to Circular no 78, RBI vide A.P. (DIR Series) Circular No.12
dated July 15, 2013 extended the benefit of USD 10 billion scheme to
Indian companies in the aforesaid sectors which have established Joint
Venture (JV) / Wholly Owned Subsidiary (WOS) / have acquired assets
overseas, subject to following conditions:
(a) ECB can be availed of for repayment of all term loans having average
residual maturity of 5 years and above / credit facilities availed of by
Indian companies from domestic banks for overseas investment in
JV/WOS, in addition to ‘Capital Expenditure’;
(b) ECB can be availed of within the scheme based on the higher of 75 per
cent of the average foreign exchange earnings realized during the past
three financial years and / or 75 per cent of the assessment made
about the average of foreign exchange earnings potential for the next
three financial years of the Indian companies from the JV / WOS /
assets abroad as certified by Statutory Auditors / Chartered
Accountant / Certified Public Accountant / Category I Merchant
Banker registered with SEBI / an Investment Banker outside India
registered with the appropriate regulatory authority in the host
country;
(c) ECB availed of under the scheme will have to be repaid out of forex
earnings9 from the overseas JV / WOS / assets.
 However, RBI vide RBI/2013-14/585 A.P. (DIR Series) Circular

No.129 dated May 9, 2014 has specified that eligible Indian companies
will NOT BE permitted to raise ECB from overseas branches /
subsidiaries of Indian banks for the purpose of refinance / repayment
of the Rupee loans raised from the domestic banking system in
respect of spectrum allocation, repayment of existing Rupee loans for
companies in infrastructure sector and Repayment of Rupee loans.
Former Provisions
 Formerly, ECB availed under Automatic Route could not be utilised for
repayment of existing rupee loans. However, as per A.P. (Dir Series) Circular No.
54 dated November 26, 2012, successful bidders making the upfront payment for
9
The past earnings in the form of dividend/repatriated profit/ other forex inflows like royalty, technical
know-how, fee, etc from overseas JV/WOS/assets will be reckoned as foreign exchange earnings for the
purpose of US$ 10 billion scheme.
the award of 2G spectrum initially out of Rupee loans availed from the domestic
lenders could refinance such rupee loans with a long-term ECB, under the
Automatic Route subject to following conditions:
o the long term ECB shall be raised within a period of 18 months from the date
of sanction of such Rupee loans for the stated purpose from the domestic
lenders.
o the designated AD Category I bank has evidenced the payment of upfront fees
to GoI in the form of a receipt/challan from DoT; and
o the designated AD - Category I bank shall monitor the end-use of funds.
 However, eligible borrowers in the Telecom Sector who were successful

bidders for spectrum allocation could avail rupee loan initially to make the
payment and refinance the same with a long-term ECB, subject to approval from
the Reserve Bank of India and fulfillment of following conditions:
o The ECB should be raised within 12 months from the date of payment of the
final installment to the Government; (ECB window for financing 3G spectrum
rupee loans, that are still outstanding in telecom operator’s books of
accounts, will be open upto March 31, 2014 – RBI vide A.P. (DIR Series)
Circular No.114 dated June 25, 2013.)
o The end-use of funds should be monitored by the designated AD-Category I
bank.
o No guarantee in any form will be given by the Banks in India.
o The borrower needs to comply with all other conditions relating to eligible
borrowers, recognized lenders, all-in-cost etc.
 Further, Indian Companies in the infrastructure sector (except companies
in the power sector) are permitted to utilise 25% of the fresh ECB raised by
them, towards refinancing of the Rupee loans availed from the domestic banking
system subject to the approval of the Reserve Bank of India and fulfillment of
following conditions:
o Atleast 75% of the fresh ECB proposed to be raised should be utilised for
capital expenditure towards new infrastructure project(s)
o In respect of the remaining 25%, the refinance needs to be utilized only for
repayment of the Rupee loan availed for ‘capital expenditure’ of earlier
completed infrastructure project(s); and
o The refinance needs to be utilised only for the Rupee loans which are
outstanding in the books of the financing bank concerned.
 The term ‘Infrastructure Sector’ has the same meaning as given in the Harmonised
Master List of Infrastructure sub-sectors approved by Government of India vide
Notification F. No. 13/06/2009-INF dated March 27, 2012 as amended / updated

from time to time. Companies in the power sector are permitted to utilize up to
40% of fresh ECB raised by them towards refinancing of the Rupee loan/s
availed from the domestic banking system subject to approval of the Reserve
Bank of India and fulfilment of the condition that atleast 60% of the fresh ECB
proposed to be raised should be utilized for fresh capital expenditure for
infrastructure project(s).
15. Is it only that Corporates are allowed to accept ECBs or can Non-Corporate
Bodies also accept ECBs?
 In case of Companies, only those who qualify as an eligible borrower are allowed
to accept ECB under the Automatic Route under the respective tracks allotted.
This means Corporate, including few in services sector, and Infrastructure
Finance Companies except financial intermediaries, such as banks, financial
institutions, Housing Finance Companies.
 Non-Corporate like Trusts and Non-Profit making organizations are eligible to
raise ECB under Track III provided they are engaged in micro finance activities
and satisfy the following criteria:
(i) should have a satisfactory borrowing relationship for atleast three years with
an AD Cat I bank in India, and
(ii) should have a certificate of due diligence on ‘fit and proper’ status from the
AD Cat I bank..
16. Who are the Borrowers eligible to avail ECB?

The list of entities eligible to raise ECB under the three tracks is set out in the
following table
Track I Track II Track III

Companies in All entities listed under Track I All entities listed under
manufacturing, and Track I
software
development sectors.
Shipping and airlines Companies in infrastructureAll Non-Banking
companies. sector. Financial Companies
(NBFCs)
Small Industries Holding companies and Core Developers of Special
Development Bank of Investment Companies (CICs) Economic Zones (SEZs)/
India (SIDBI). National Manufacturing
and Investment Zones
(NMIZs).

Units in Special Real Estate Investment Trusts Companies engaged in
Economic Zones (REITs) and Infrastructure miscellaneous services
(SEZs). Investment Trusts (INVITs) viz. research and
Export Import Bank coming under the regulatory development (R&D),
of India (Exim Bank) framework of the Securities and training (other than
(only under the Exchange Board of India (SEBI). educational institutes),
approval route companies supporting
infrastructure,
companies providing
logistics services.
Infrastructure sector, NBFCs-Micro Finance
NBFC-IFC, NBFC-AFC, Institutions (NBFCs-
CICs, Holding MFIs), Not for Profit
Companies10 companies registered
under the Companies
Act, 1956/2013,
Societies, trusts and
cooperatives (registered
under the Societies
Registration Act, 1860,
Indian Trust Act, 1882
and State-level
Cooperative Acts/Multi-
level Cooperative
Act/State-level mutually
aided Cooperative Acts
respectively), Non-
Government
Organisations (NGOs)
which are engaged in
micro finance
activities .
11
17. Can Entities engaged in manufacturing sector avail ECBs?

 Companies in manufacturing and software development sectors can avail ECB
under Track I subject to conditions laid down by the RBI.
 Also refer the carve out available to manufacturing sector under Question 14.
10
11
Entities engaged in micro-finance activities to be eligible to raise ECB:
(i) should have a satisfactory borrowing relationship for atleast three years with an AD Cat I bank in India, and
(ii) should have a certificate of due diligence on ‘fit and proper’ status from the AD Cat I bank.
18. Can Corporate engaged in services sector avail ECBs under automatic
route:
 Companies in software development sector, Shipping and airline companies can
avail ECB under Track I, II and III.
 Corporate engaged in miscellaneous services viz. research and development
(R&D), training (other than educational institutes), companies supporting
infrastructure and companies providing logistics services can avail ECB under
Track III.
 Individual limit for service sector has been stipulated of USD200 million or
equivalent under automatic route. Corporate in the services sector can avail of
ECB beyond USD 200 million or its equivalent in a financial year under approval
route.
19. Can NBFCs avail of ECBs?

 All NBFCs, under the purview of RBI,12 can avail ECBs under Track III for
following purpose:
o On-lending to the infrastructure sector;
o Providing hypothecated loans to domestic entities for acquisition of
capital goods/ equipments; and
o Providing capital goods/ equipment to domestic entities by way of lease
and hire-purchases.
 Further, NBFCs-Micro Finance Institutions (NBFCs-MFIs), other eligible MFIs,
NGOs and not for profit companies registered under the Companies Act, 1956/
2013 are also eligible to raise ECB under Track III only for on-lending to self-
help groups or for micro-credit or for bonafide micro finance activity including
capacity building.
 NBFC-IFC and NBFC-AFC can avail ECB under Track-I too, for the purpose of
investment in infrastructure sector only.
Position under erstwhile ECB framework:
 NBFCs other than those specified below were not eligible to avail ECB.
 NBFCs categorized as Non-Banking Financial Company-Micro Finance
Institutions’ (NBFC-MFIs), by the Reserve Bank, could avail ECBs under
Automatic Route.
12
 NBFCs could obtain ECB under the approval route, with minimum average
maturity of 5 years, from multilateral financial institutions, reputable regional
financial institutions, official export credit agencies and international banks to
finance import of infrastructure equipment for leasing to infrastructure projects.
 NBFCs categorized as IFCs by the Reserve Bank, were permitted to avail of ECBs,
including the outstanding ECBs, upto 75% of their owned funds, under the
automatic route as per A.P. (DIR Series) Circular No. 69 dated January 7, 2013.
NBFC-IFCs desirous of availing ECBs beyond 75 % of their owned funds would
require the approval of the Reserve Bank and, therefore, be considered under
the approval route. However, the same was subject to fulfillment of compliance
norms as stipulated by the Reserve Bank via DNBS circular dated February, 2010
and hedging of the currency risk in full.
 NBFCs categorized as Asset Finance Companies ( AFCs) by the Reserve Bank
had been allowed vide A.P. (DIR Series) Circular No. 6 dated July8, 2013 to avail of
ECB subject to following conditions:
(i) NBFC-AFCs are allowed to avail of ECB under the automatic route from all
recognised lenders as per the extant ECB guidelines with minimum
average maturity period of five years in order to finance the import of
infrastructure equipment for leasing to infrastructure projects;
(ii) in cases, where the NBFC-AFCs avail of ECB in the form of Foreign
Currency Bonds from international capital markets, such ECBs will be
permitted to be raised only from those international capital markets that
are subject to regulations prescribed by the host country regulator in a
Financial Action Task Force (FATF) member country compliant with
FATF guidelines;
(iii) such ECBs (including outstanding ECBs) under the automatic route can be
availed upto 75 per cent of owned funds of NBFC-AFCs, subject to a
maximum of USD 200 million or its equivalent per financial year;
(iv) ECBs by AFCs above 75 per cent of their owned funds will be considered
under approval route by Reserve Bank; and
(v) the currency risk of such ECBs is required to be hedged in full.
20. Can HFCs avail ECBs?

For raising of ECB under ECB facility for low cost affordable housing projects
(low cost affordable housing projects as defined in the extant Foreign Direct
Investment policy), the borrowers will, however, have time up to March 31,
2016 to sign the loan agreement and obtain the LRN from the Reserve Bank by
this date:
o HFCs can avail ECB subject to conditions that:-The HFC should be registered
with the National Housing Bank (NHB) and operating in accordance with the
regulatory directions and guidelines issued by NHB;
o The minimum Net Owned Funds (NOF) for the past three financial years shall
not be less than INR 300 crore;
o Borrowing through the ECB should be within the HFC's overall borrowing
limit of 16 times their Net Owned Funds (NOF);
o The net non-performing assets (NNPA) shall not exceed 2.5 % of the net
advances;
o The maximum loan amount sanctioned to the individual buyer will be capped
at INR 25 lakh subject to the condition that the cost of the individual housing
unit shall not exceed INR 30 lakh; and
o The ECB shall be swapped into Rupees for the entire maturity on fully
hedged basis.
 HFCs while making the applications, shall
o submit a certificate from NHB, the nodal agency, that the availment of ECB is
for financing prospective owners of individual units for the low cost
affordable housing;
o ensure that cost of such individual units does not exceed Rs. 30 lakh and loan
amount does not exceed Rs. 25 lakh;
o ensure that the units financed are having maximum carpet area of 60 square
metres; and
o ensure that the interest rate spread charged by the HFCs to the ultimate
buyer is reasonable.
 NHB shall ensure that interest rate spread for HFCs for on-lending to prospective
owners’ of individual units under the low cost affordable housing scheme is
reasonable.
 The ECB to be availed will be subject to an aggregate limit of USD 1(one) billion
fixed for ECB under the low cost affordable housing scheme which includes ECBs
to be raised by developers/builders and NHB/specified HFCs, for each of the
financial year 2013-14, 2014-15 and 2015-16.
21. Can Infrastructure Finance Companies (IFCs) avail ECBs?

 IFCs can avail of ECBs under the Track I, Track II and Track III of the automatic
route.
 Additionally, NBFC-IFC can also avail of facility of credit enhancement by eligible
non-resident entities (viz. Multilateral financial institutions (such as, IFC, ADB,
etc.) / regional financial institutions and Government owned (either wholly or
partially) financial institutions, direct/ indirect equity holder) to domestic debt
raised through issue of capital market instruments, such as Rupee denominated
bonds and debentures.
o NBFC-IFCs proposing to avail of the credit enhancement facility should
comply with the eligibility criteria and prudential norms laid down in
the circular DNBS.PD.CC No.168/03.02.089/2009-10 dated February 12,
2010 and in case the novated loan is designated in foreign currency, the
IFC should hedge the entire foreign currency exposure; and
o The reporting arrangements as applicable to the ECBs would be
applicable to the novated loans.
22. Can builders/real estate companies avail ECBs?
For raising of ECB under ECB facility for low cost affordable housing projects
(low cost affordable housing projects as defined in the extant Foreign Direct
Investment policy), the borrowers will, however, have time up to March 31,
2016 to sign the loan agreement and obtain the LRN from the Reserve Bank by
this date:
 Only Developers/Builders registered as companies may raise ECB for low cost
affordable housing projects, qualifying as an eligible borrower, can avail of ECB
(not through issue of FCCBs) under the Approval Route.
 They should have minimum 3 years’ experience in undertaking residential
projects, have good track record in terms of quality and delivery and the project
and all necessary clearances from various bodies including Revenue Department
with respect to land usage/environment clearance, etc., are available on record.
 They should also not have defaulted in any of their financial commitments to
banks/ financial institutions or any other agencies and the project should not be
a matter of litigation.
 Builders/ developers meeting the eligibility criteria shall have to apply to the
National Housing Bank (NHB) in the prescribed format.
 NHB shall act as the nodal agency for deciding a project’s eligibility as a low cost
affordable housing project, and on being satisfied, forward the application to the
Reserve Bank for consideration under the approval route.
 Once NHB decides to forward an application for consideration of RBI, the
prospective borrower (builder/developer) will be advised by the NHB to
approach RBI for availing ECB through his Authorised Dealer in the prescribed
format.
 The ECB availed of by developers and builders shall be swapped into Rupees for
the entire maturity on fully hedged basis
23. What needs to be done for a builder to avail ECBs through the National
Housing Bank?
 If a builder/developer is not able to raise ECB directly as discussed above,
National Housing Bank shall be permitted to avail of ECB, under approval route,
for on-lending to such developers who satisfy the following eligibility criteria,
subject to the interest rate spread set by the Reserve Bank:
i) Developers/builders undertaking low cost affordable housing projects
should be a company registered under the Companies Act, 1956;
ii) Such developers/builders should have minimum 3years’ experience in
undertaking residential projects, and should have good track record in terms
of quality and delivery;
iii) The developers/builders should not have defaulted in any of their financial
commitments to banks/ financial institutions or any other agencies;
iv) The project should not be a matter of litigation;
v) The project should be in conformity with the provisions of master plan/
development plan of the area. The layout should conform to the land use
stipulated by the town and country planning department for housing
projects; and
vi) All necessary clearances from various bodies including Revenue Department
with respect to land usage/environment clearance, etc., are available on
record.
 The ECB availed of by developers and builders shall be swapped into Rupees for
the entire maturity on fully hedged basis.
24. Who can be the lender for an ECB?
International banks and All entities listed under All entities listed under
International capital markets Track I but for overseas Track I but for overseas
branches / subsidiaries branches / subsidiaries of
of Indian banks. Indian banks.
Export credit agencies, In case of NBFCs-MFIs,

Suppliers of equipment, & other eligible MFIs, not
Foreign equity holders. for profit companies and
NGOs, ECB can also be
availed from overseas
organisations13 and
individuals .
14
Multilateral financial
institutions (such as, IFC,
ADB, etc.) / regional financial
institutions and Government
owned (either wholly or
13
Overseas Organizations proposing to lend ECB would have to furnish to the AD bank of the borrower a
certificate of due diligence from an overseas bank, which, in turn, is subject to regulation of host-country
regulators and such host country adheres to the Financial Action Task Force (FATF) guidelines on anti-money
laundering (AML)/ combating the financing of terrorism (CFT). The certificate of due diligence should
comprise the following: (i) that the lender maintains an account with the bank at least for a period of two years,
(ii) that the lending entity is organised as per the local laws and held in good esteem by the business/local
community, and (iii) that there is no criminal action pending against it.
14
Individual lender has to obtain a certificate of due diligence from an overseas bank indicating that the lender
maintains an account with the bank for at least a period of two years. Other evidence /documents such as
audited statement of account and income tax return, which the overseas lender may furnish, need to be certified
and forwarded by the overseas bank. Individual lenders from countries which do not adhere to FATF guidelines
on AML / CFT are not eligible to extend ECB.
partially) financial
institutions.
Overseas long term investors
such as:
a. prudentially regulated
financial entities;
b. Pension funds;
c. Insurance companies;
d. Sovereign Wealth Funds;
e. Financial institutions
located in International
Financial Services Centres in
India
Overseas branches /
subsidiaries of Indian
banks 15
25. Is it possible for a foreign equity holder to provide ECBs to the company in
which such equity holder holds investment?
Eligibility for a foreign equity holder to be a ‘Recognized Lender’
Particulars Under Automatic Under Approval Route

Route
For ECB upto USD 5 Minimum paid-up equity of Minimum paid-up equity of
million 25% held directly by the 25% held directly by the
lender. lender.
For ECB more than USD Minimum paid-up equity of Minimum paid-up equity of
5 million 25% held directly by the 25% held directly by the
lender & ECB liability- lender & ECB liability-
equity ratio# not exceeding equity ratio# not exceeding
4:1 7:1
15
Participation of Indian banks, their overseas branches / subsidiaries will be subject of prudential norms issued
by the Department of Banking Regulation (DBR) of the Reserve Bank.
#For computation of ECB liability- equity ratio refer Question No.26
As per A.P (DIR Series) Circular No.31 dated September 4, 2013 eligible borrowers
are permitted to avail of ECB under the approval route from their foreign equity
holder company with minimum average maturity of 7 years for general corporate
purposes subject to the following conditions:
i. Minimum paid-up equity of 25 per cent should be held directly by the lender;
ii. Such ECBs would not be used for any purpose not permitted under extant the
ECB guidelines (including on-lending to their group companies / step-down
subsidiaries in India); and
iii. Repayment of the principal shall commence only after completion of minimum
average maturity of 7 years. No prepayment will be allowed before maturity.
26. What is the meaning of the debt/equity ratio in case of foreign equity
holders?
 Debt/equity ratio in case of foreign equity shareholders means the ECB liability-
equity ratio.
 ECB liability means the proposed borrowing + the outstanding borrowing from
the concerned foreign equity holder lender.
 Equity means Paid up capital + free reserves (including the share premium
received in foreign currency from the concerned foreign equity holder lender)
27. Whether availing of operating lease by an Indian Entity an ECB?

 As per A.P.(DIR Series)Circular No.24 dated March 1, 2002, authorised dealers
may allow remittance of payment of lease rentals, opening of letter of credit
towards security deposit etc. in respect of import of aircraft/ aircraft engine/
helicopter on operating lease basis, after verifying documents to show that
necessary approval from the appropriate authorities has been obtained.
 Further, by way of A.P.(DIR Series)Circular No.13 dated September 27, 2005 ADs
may permit airline companies (other than a Public Sector company or a
Department/Undertaking of the Government of India/State Government/s) to
remit up to USD 1,000,000 (US Dollar one million only) per aircraft towards
security deposit (for payment of lease rentals) with lessor for import of aircraft /
aircraft engine / helicopter on operating lease without a standby letter of credit
or a guarantee from a reputed international bank abroad or a guarantee of an AD
in India against the counter-guarantee of a reputed international bank abroad

subject to following conditions:,
o The AD is satisfied about the bona fides of the transaction.
o The airline company has obtained necessary approval from appropriate
authority like Ministry of Civil Aviation/Director General of Civil Aviation,
Government of India for importing the aircraft/helicopter on operating lease.
o Remittance is permitted as per the Policy on Advance Remittances approved
by the Board of Directors of the bank or with the specific approval of the
Board of Directors of the bank.
o The final maturity of the security deposit should not be beyond the date of
the last installment towards lease rental or date of return of the aircraft /
helicopter to the lessor, whichever is later. If required, the deposit amount
may be adjusted towards lease rentals. However, the balance security
deposit, if any, should be repatriated before expiry of the lease period.
 In case of an airline company in the Public Sector or a Department/Undertaking of
the Government of India/State Government/s, ADs may permit remittance of
amount exceeding USD 1,00,000 (US Dollar one hundred thousand only) per
aircraft towards security deposit (for payment of lease rentals) with lessor subject
to conditions specified above and a specific waiver of bank guarantee from the
Ministry of Finance, Government of India.
 As per A. P. (DIR Series) Circular No.62 dated April 20, 2009, AD Category – I banks
are allowed to convey ‘no objection’ from the Foreign Exchange Management Act
(FEMA), 1999 angle for issue of corporate guarantee in favour of the overseas
lessor, for operating lease in respect of import of aircraft / aircraft engine /
helicopter, after obtaining –
o Board Resolution for issue of corporate guarantee from the company issuing
such guarantees, specifying names of the officials authorised to execute such
guarantees on behalf of the company.
o Ensuring that the period of such corporate guarantee is co-terminus with the
lease period.
 Further, the Reserve Bank videNotificationNo. FEMA 206 / 2010-RB. dated June 1,
2010 amended the Foreign Exchange Management (Guarantees) Regulations,
2000 and inserted a new clause to the effect that :
“a bank which is an authorised dealer may, subject to the directions issued by the
Reserve Bank in this behalf, permit a person resident in India to issue corporate
guarantee in favour of an overseas lessor for financing imports through operating
lease effected in conformity with the Foreign Trade Policy in force and under the
provisions of the Foreign Exchange Management (Current Account Transactions)
Rules, 2000 framed by Government of India vide Notification No G.S.R. 381 (E)
dated May 3, 2000 and the directions issued by Reserve Bank under Foreign
Exchange Management Act, 1999 from time to time.”
28. Can an Operating Leasing or Asset Renting entity avail ECBs?

o Operating leasing or Asset Renting entity render the service of providing the
asset on operating lease. The lessor has the legal title as well as the economic
ownership.
o Being companies engaged in miscellaneous services viz. companies supporting
infrastructure, companies providing logistics services can avail ECB under
Track III.
29. Is a financial lease also treated as ECB?

 Yes, financial lease16, is also treated as ECB. The revised ECB framework
incorporates or identifies financial lease as a form of ECB unlike earlier
framework.
30. Can securitisation be treated as ECB?

 ECB includes commercial loans in the form of securitized instruments like
floating rate notes, fixed rate bonds etc.
 Thus raising money by way of securitisation from non-resident investors will be
treated as ECB.
31. What is the procedure for getting ECBs under automatic route?
 Eligible Borrower enters into a loan agreement with the recognised lender for
raising ECB under Automatic Route.
 The Borrower is required to submit Form-83, in duplicate, certified by the
Company Secretary (CS) or Chartered Accountant (CA) to the designated AD
bank.
 The designated AD, after providing requisite details in Part F of the Form-83, will
forward one copy to the Director, Balance of Payments Statistics Division,
Department of Statistics and Information Management (DSIM), Reserve Bank of
16
Financial lease is a lease where the lessee is the owner, while the lessor has only the legal title and not
the economic ownership.
India, Bandra-Kurla Complex, Mumbai – 400 051, within 7 days from the date of
signing loan agreement between borrower and lender for allotment of LRN.
 The borrower can draw-down the loan only after obtaining the LRN from DSIM,
Reserve Bank.
 The Borrowers are then required to submit ECB - 2 Return certified by the
designated AD bank on monthly basis so as to reach DSIM, Reserve Bank within
7 working days from the close of month to which it relates.
32. What is the procedure for getting ECBs under approval route?
 The Applicants are required to submit an application in Form ECB through the
designated AD to the Chief General Manager-In-Charge, Foreign Exchange
Department, Central Office, ECB Division, Reserve Bank of India, Mumbai-
400 001, along with following documents ( as relevant) certified by AD:-
o A copy of offer letter from the overseas lender/supplier furnishing complete
details of the terms and conditions of proposed ECB.
o A copy of the import contract, proforma/commercial invoice/bill of lading.
 After obtaining the Approval, the Borrower is required to submit Form-83, in
duplicate, certified by the Company Secretary (CS) or Chartered Accountant (CA)
to the designated AD bank.
 The designated AD, after providing requisite details in Part F of the Form-83, will
forward one copy to the Director, Balance of Payments Statistics Division,
Department of Statistics and Information Management (DSIM), Reserve Bank of
India, Bandra-Kurla Complex, Mumbai – 400 051, within 7 days from the date of
signing loan agreement between borrower and lender for allotment of LRN.
 The borrower can draw-down the loan only after obtaining the LRN from DSIM,
Reserve Bank.
 The Borrowers are then required to submit ECB - 2 Return certified by the
designated AD bank on monthly basis so as to reach DSIM, Reserve Bank within
7 working days from the close of month to which it relates.
Also, vide the A.P. (DIR Series) Circular No. 8017, dated 30th June, 2016 it has
been clarified that with a view to rationalizing and expediting the process of
giving approval, ECB proposals received in the Reserve Bank above a certain
threshold limit (refixed from time to time), be placed before the Empowered
17
Committee. The Reserve Bank will take a final decision in the cases taking into
account the recommendation of the Empowered Committee.
33. Is it necessary that ECBs must be full hedged?

 The forex exposure of following borrowers needs to be fully hedged:-.
o In case of ECB availed by NBFCs categorized as IFCs and HFCs, the currency
risk needs to be fully hedged.
o If IFCs has availed of credit enhancement facility and the same gets invoked,
then in case the novated loan is designated in foreign currency, the IFCs
should hedge the entire foreign currency exposure.
o Infrastructure companies, CICs and Holding Companies also need to hedge
their currency risk, if ECB is raised under Track-I.
o ECB availed by the HFCs.
 In case of other borrowers, hedging of ECB can be optional.
 The entities raising ECB under the provisions of Tracks I and II are required to
follow the guidelines issued, if any, by the concerned sectoral or prudential
regulator with regard to hedging.
34. What are the restrictions on all-in cost of ECBs? What all is included in all-
in costs?
 The all-in-cost requirements for the three tracks will be as under:
1. For ECB with minimum average The maximum spread over the The all-in-cost
maturity period of 3 to 5 years - bench mark will be 500 basis should be in line
300 basis points per annum over 6 points per annum. with the market
month LIBOR18* or applicable conditions.
bench mark for the respective
currency.
2. For ECB with average maturity
period of more than 5 years – 450
basis points per annum over 6
month LIBOR or applicable bench
mark for the respective currency.
18
LIBOR means London Interbank Offered Rate being a benchmark giving an indication of the average rate at
which a LIBOR contributor bank can obtain unsecured funding in the London interbank market for a given
period, in a given currency. Libor rates are calculated for ten currencies and 15 borrowing periods ranging from
overnight to one year and are published daily at 11:30 am (London time) by Thomson Reuters.
Penal interest, if any, for default or Remaining conditions will be as

breach of covenants should not be given under Track I
more than 2 per cent over and above
the contracted rate of interest.
 All-in cost includes rate of interest and other fees and expenses in foreign
currency, guarantee fees whether paid in foreign currency or INR.
 However, commitment fee, pre-payment fee, fees payable in Indian Rupees and
payment of withholding tax in Indian Rupees are excluded for calculating the all-
in-cost.
 Cost of hedging is also not included in all-in cost ceiling.
 In the case of fixed rate loans, the swap cost plus spread should be equivalent of
the floating rate plus the applicable spread.
35. What are the maturity restrictions on ECBs?

The minimum average maturities* for the three tracks are as follows:
Track I Track II Track II

i. 3 years for ECB upto USD 50 10 years irrespective Same as under Track I.
million or its equivalent. of the amount.
ii. 5 years for ECB beyond USD

50 million or its equivalent.
iii. 5 years for FCCB/FCEB

irrespective of the amount
raised.
iv. 5 years for infrastructure

companies, NBFC-IFC, NBFC-
AFC, CIC, Holding Companies if
raised under Track-I
* Computation of average maturity period may be viewed at Annex VI - Calculation

of Average Maturity- An Illustration.
 In case of domestic debt raised through issue of capital market instruments, such
as debentures and bonds, by all borrowers eligible to raise ECB under the
automatic route subject to fulfillment of certain conditions Viz. the underlying
debt instruments should have a minimum average maturity of three years and
Prepayment and call/put options would be permissible for such capital

market instruments only after an average maturity period of 3 years.
36. The maturity restrictions talk about minimum maturity – is there anything
on maximum maturity?
 Under the extant norms on ECB provided by the Reserve Bank, there are no
restrictions pertaining to maximum maturity of ECB.
37. What is Take-out Finance and who are allowed to avail the facility of take-
out finance?
 Keeping in view the special funding needs of the infrastructure sector, take-out
financing arrangement through ECB, under the approval route, has been
permitted for refinancing of Rupee loans availed of from the domestic banks by
eligible borrowers in the sea port and airport, roads including bridges and
power sectors for the development of new projects, subject to the following
conditions:
o The corporate developing the infrastructure project should have a tripartite
agreement with domestic banks and overseas recognized lenders for either
a conditional or unconditional take-out of the loan within three years of the
scheduled Commercial Operation Date (COD). The scheduled date of
occurrence of the take-out should be clearly mentioned in the agreement.
o The loan should have a minimum average maturity period of seven years.
o The domestic bank financing the infrastructure project should comply with
the extant prudential norms relating to take-out financing.
o The fee payable, if any, to the overseas lender until the take-out shall not
exceed 100 bps per annum.
o On take-out, the residual loan agreed to be taken out by the overseas lender
would be considered as ECB and the loan should be designated in a
convertible foreign currency and all the extant norms relating to ECB should
be complied with.
o Domestic banks / Financial Institutions will not be permitted to guarantee the
take-out finance.
o The domestic bank will not be allowed to carry any obligation on its balance
sheet after the occurrence of the take-out event.
o Reporting arrangement as prescribed under the ECB policy should be adhered
to.
 However, RBI vide RBI/2013-14/585 A.P. (DIR Series) Circular No.129 dated May
9, 2014 have specified that eligible Indian companies will not be permitted to
raise ECB from overseas branches / subsidiaries of Indian banks for the purpose
of refinance / repayment of the Rupee loans raised from the domestic banking
system in respect of take-out financing scheme.
38. What are the options available for repayment of ECBs?

 The ECB can be repaid as per the repayment schedule submitted while obtaining
the LRN.
 The Designated AD bank has general permission to make remittances of
installments of principal, interest and other charges in conformity with the ECB
guidelines.
 Alternatively, Conversion of ECB into equity is permitted subject to the following
conditions:-
o The activity of the company is covered under the Automatic Route for Foreign
Direct Investment or Government (FIPB) approval for foreign equity
participation has been obtained by the company, wherever applicable.
o The foreign equity holding after such conversion of debt into equity is within
the sectoral cap, if any, as specified under the Consolidated FDI Policy issued
by DIPP from time to time.
o Pricing of shares is as per the pricing guidelines issued under FEMA, 1999 in
the case of listed/ unlisted companies.
 Reporting requirements on conversion of ECB, to the Reserve Bank (Refer
Question No. 39.
39. What are the reporting requirements in case of conversion of ECB into
equity?
 In case of full conversion of outstanding ECB into equity:
o Form FC-GPR needs to be filed with the regional office concerned of the
Reserve Bank.
o Form ECB - 2 needs to be submitted to the DSIM, RBI within 7 working days
from the close of month to which it relates.
o The words “ECB wholly converted to equity” should be clearly indicated on
top of the Form ECB - 2.
o Once reported, filing of Form ECB - 2 in the subsequent months is not
necessary.
 In case of partial conversion of outstanding ECB into equity:
o The converted portion needs to be reported in Form FC-GPR to the Regional

Office.
o Form ECB - 2 needs to be filed for the unconverted portion, clearly
indicating “ECB partially converted to equity” on the top of the Form ECB - 2.
o In subsequent months, the outstanding portion of ECB should be reported in
Form ECB - 2 to DSIM.
40. Is prepayment allowed in case of ECB?
Prepayment of ECB may be allowed by AD Cat I banks subject to compliance with the
stipulated minimum average maturity as applicable to the contracted loan under these
guidelines.
41. Can ECB be refinanced by raising a fresh ECB or be rescheduled?
The designated AD Cat I bank may allow refinancing of existing ECB by raising fresh
ECB provided the residual maturity is not reduced and all-in-cost of fresh ECB is lower
than the existing ECB. Raising of fresh ECB to part refinance the existing ECB is also
permitted subject to same conditions.
42. What procedure needs to be followed in case of change in the terms and
conditions of the ECB?
Particulars Approval needed Condition specified
from
Changes/Modifications Designated AD Average Maturity period as
in the drawdown/ Category-I banks. declared while obtaining the LRN
repayment schedule19 (availed both under is maintained.
the approval and
the automatic
route)
Changes/Modifications Designated AD  no changes/ modifications in
in the drawdown Category-I banks. the repayment schedule of the
schedule resulting in (availed both under ECB.
the original average the approval and  such reduced average maturity
19 The changes in the drawdown/repayment schedule should be promptly reported to the DSIM,
RBI in Form-83. However, any elongation/rollover in the repayment on expiry of the original
maturity of the ECB would require the prior approval of the Reserve Bank.
maturity period the automatic period complies with the

undergoing change. route) stipulated minimum average
maturity period.
 Change in all-in-cost is only due
to the change in the average
maturity period.
 ECB guidelines are complied
with and the monthly ECB - 2
returns in respect of the LRN have
been submitted to DSIM.
20Re-schedulement of Designated AD  Changes, if any, in all-in-cost

ECB due to changes in Category-I banks. (AIC) is only on account of the
drawdown/repayment (availed both under change in average maturity period
schedule the approval and (AMP) due to re-schedulement of
the automatic ECB and post re-schedulement, the
route) AIC and the AMP are in conformity
with applicable guidelines. There
should not be any increase in the
rate of interest and no additional
cost (in foreign currency / Indian
Rupees) should be involved.
 The re-schedulement is allowed
only once, before the maturity of
the ECB
 If the lender is an overseas
branch of a domestic bank, the
prudential norms applicable on
account of re-
schedulement should be complied
with.
 The changes on accountof re-
schedulement should be reported
to DSIM through revised Form 83.
 The ECB should be in
compliance with all applicable
guidelines related to eligible
borrower, recognised lender, AIC,
AMP, end-uses, etc.
 The borrower should not be in
20 Inserted vide RBI/2013-14/584A.P. (DIR Series) Circular No. 128 dated 09/05/2014.
the default / caution list of RBI and

should not be under the
investigation of Directorate
of Enforcement.
Changes in the Designated AD  All other terms and conditions
currency of borrowing Category-I banks. of the ECB should remain
(availed both under unchanged.
the approval and  The proposed currency should
the automatic be freely convertible.
route)  The changes should be promptly
reported to DSIM, Reserve Bank of
India in Form-83.
Change of the AD Bank. Designated AD  Subject to No-Objection
Category-I banks. Certificate (NoC) from the existing
designated AD bank and after due-
diligence.
 The changes should be promptly
India in Form-83.
Changes in the name of Designated AD  Subject to production of
the Borrower Category-I banks. documents evidencing the change
Company in the name from the Registrar of
Companies.
India in Form-83.
Change in the Designated AD  Subject to the AD ensuring that
recognized lender Category-I banks.21 the new lender is a recognized
lender as per the extant ECB
norms
 There is no change in other
terms and conditions of the ECB.
 ECB is in compliance with the
extant guidelines.
reported to DSIM, Reserve Bank
of India in Form-83.
Cancellation of LRN The Designated AD  Subject to ensuring that no draw
21 When the original lender is an international bank or a multilateral financial institution (such
as IFC, ADB, CDC, etc.) or a regional financial institution or a Government owned development
financial institution or an export credit agency or supplier of equipment and the new lender
also belongs to any one of the above mentioned categories
Category-I bank down for the said LRN has taken

may directly place.
approach DSIM for  The monthly ECB - 2 returns till
cancellation of LRN date in respect of the LRN have
for ECBs availed, been submitted to DSIM.
both under the
automatic and
approval routes
Change in the end-use The designated AD  Subject to ensuring that the
of ECB proceeds22 Category-I bank proposed end-use is permissible
may approve under the automatic route as
requests for per the extant ECB guidelines.
ECB availed under  ECB is in compliance with the
the automatic route extant guidelines.
 The monthly ECB - 2 returns till
date in respect of the LRN have
Reduction in amount The Designated AD  Subject to ensuring that the
of ECB Category-I bank consent of the lender for
may approve reduction in loan amount has
requests for been obtained.
ECB availed under  The average maturity period of
the automatic route the ECB is maintained.
 The monthly ECB - 2 returns till
 There are no changes in other
terms and conditions of the ECB.
Reduction in the all-in- Designated AD  Subject to ensuring that the
cost of ECB Category-I banks. consent of the lender has been
(availed both under obtained.
the approval and  There are no changes in other
the automatic terms and conditions of the ECB.
route)  The monthly ECB - 2 returns till
22 Change in the end-use of ECBs availed under the approval route will continue to be referred
to the Foreign Exchange Department, Central Office, Reserve Bank of India

43. Can Corporate, which have violated the extant ECB policy and are under
investigation by the Reserve Bank, avail of ECB?
 As per A.P. (DIR Series) Circular No. 87 dated March 5, 2013 all entities are
permitted to avail of ECBs under the automatic route as per the current norms,
notwithstanding the pending investigations / adjudications / appeals by the law
enforcing agencies, without prejudice to the outcome of such investigations /
adjudications / appeals.
 Accordingly, in case of all applications where the borrowing entity has indicated
about the pending investigations / adjudications / appeals, Authorised Dealers
while approving the proposal shall intimate the concerned agencies by
endorsing the copy of the approval letter.
 The same procedure will be followed by the Reserve Bank of India also while
approving such proposals.
44. If I go for ECBs, should I hedge myself, or leave it unhedged?

 This is substantially dependent on (a) whether you have a natural hedge in your
operations and revenues; and (b) what view would you like to take on the
movements in foreign exchange over time. Since ECBs are a long-term exposure,
the long-term movement of exchanges rates tends to kill the interest rate
differentials in a pair of currencies. However, this fundamental argument, called
interest rate parity theory, is currently affected by a whole lot of macroeconomic
factors.
45. How about accounting for forex losses in ECBs?

 The Ministry of Corporate Affairs, vide Notification No. G.S.R. 225(E) dated 31st
March, 2009 issued Companies (Accounting Standards) Amendment Rules, 2009
thereby inserting paragraph 46 in Accounting Standard (AS) 11 relating to “The
Effects of Changes in Foreign Exchange Rates”.
 By virtue of the same,
o Exchange differences arising on reporting of long-term foreign currency
monetary items at rates different from those at which they were initially
recorded during the period, or reported in previous financial statements
relating to acquisition of a depreciable capital asset, can be added to or
deducted from the cost of the asset and can be depreciated over the balance
life of the asset.
o In other cases, it can be accumulated in “Foreign Currency Monetary Item

Translation Difference Account” in the enterprise’s financial statements and
amortized over the balance period of such long-term asset/liability.
 These treatments were initially allowed in respect of accounting periods
commencing on or after 7th December, 2006 and up to 31st March, 2011 and
later, vide Notification No. G.S.R. 378 (E) dated 11th May, 2011 upto31st March,
2012.
 However, vide MCA Notification No. G.S.R. 913(E) dated 29th December, 2011,
the above mentioned treatment for accounting forex losses was allowed in
respect of accounting periods commencing on or after 7th December, 2006 and
ending on or before 31st March, 2020.
Also see our other related write-ups:
 Article on ‘An attempt to fill the gap-significant changes in ECB Policy’ at http://india-
financing.com/An_attmept_to_fil_the_gap_changes_made_in_ECB_policy.pdf
 Article on ‘Relaxation of ECB Norms- Advantage for Manufacturing & Infrastructure
Sector’ at http://india-financing.com/new_ECB_norms.pdf
 Presentation on ‘ Overview of FDIs and ECBs’ at http://india-
financing.com/Overview_of_FDIs_and_ECBs.pdf
 Article on ‘RBI tightens ECB route for NIMZ developers’ at http://india-
financing.com/RBI_tightens_ECB_route_for_NIMZ_developers.pdf
 Article on ‘Simplification of ECB Procedures-delegation of Powers to AD Bank’ at
http://india-financing.com/Simplification_of_ECB_procedures.pdf
 Other articles on Foreign Direct Investments, FEMA, ECB etchttp://india-
financing.com/staff-publications-fdi.html

Primer On ECBs

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Primer On ECBs

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Primer

Primer on External Commercial

M/s Vinod Kothari & Company

1. How does ECB compare with domestic borrowings in terms of costs? 4

29. Is a financial lease also treated as ECB? 27

1. How does ECB compare with domestic borrowings in terms of costs?

2. What is the key difference between ECB and FDI?

Parameters ECB FDI

3. What all instruments of borrowings /debt instruments are covered by the

5. What is the recent amendment made in ECB?

i. ECB facility for working capital by airlines companies;

7. What will be the nature of ECB that can be availed?

Particulars Track I Track II Track III

Particulars Track I Track II Track III

8. What are the End-use restrictions in case of ECB?

Particulars Track I Track II Track III

Particulars Track I Track II Track III

8. ECBs raised by NBFC-IFCs and NBFC-

9. Is ECB allowed for working capital or general corporate purposes?

10. Is ECB allowed for capital expenditure?

iv. Modernisation /expansion of existing units;

11. What is the definition of infrastructure under extant ECB guidelines?

 For the purpose of raising ECB the definition of infrastructure will be as

(b) Communication which will include (i) mobile telephony services /

(e) (i) mining, (ii) exploration and (iii) refining;

(g) Through the notification RBI/2015-16/349 of A.P. (DIR Series) Circular

13. Can ECB be availed by Holding Companies/ Core Investment Companies?

 However, RBI vide RBI/2013-14/585 A.P. (DIR Series) Circular

 However, eligible borrowers in the Telecom Sector who were successful

Notification F. No. 13/06/2009-INF dated March 27, 2012 as amended / updated

16. Who are the Borrowers eligible to avail ECB?

Track I Track II Track III

Track I Track II Track III

17. Can Entities engaged in manufacturing sector avail ECBs?

19. Can NBFCs avail of ECBs?

Position under erstwhile ECB framework:

20. Can HFCs avail ECBs?

21. Can Infrastructure Finance Companies (IFCs) avail ECBs?

22. Can builders/real estate companies avail ECBs?

24. Who can be the lender for an ECB?

Track I Track II Track III

Export credit agencies, In case of NBFCs-MFIs,

Eligibility for a foreign equity holder to be a ‘Recognized Lender’

Particulars Under Automatic Under Approval Route

#For computation of ECB liability- equity ratio refer Question No.26

27. Whether availing of operating lease by an Indian Entity an ECB?

in India against the counter-guarantee of a reputed international bank abroad

28. Can an Operating Leasing or Asset Renting entity avail ECBs?

29. Is a financial lease also treated as ECB?

30. Can securitisation be treated as ECB?

33. Is it necessary that ECBs must be full hedged?

Penal interest, if any, for default or Remaining conditions will be as

35. What are the maturity restrictions on ECBs?

Track I Track II Track II

ii. 5 years for ECB beyond USD

iii. 5 years for FCCB/FCEB

iv. 5 years for infrastructure

* Computation of average maturity period may be viewed at Annex VI - Calculation

Prepayment and call/put options would be permissible for such capital

38. What are the options available for repayment of ECBs?

o The converted portion needs to be reported in Form FC-GPR to the Regional

40. Is prepayment allowed in case of ECB?

41. Can ECB be refinanced by raising a fresh ECB or be rescheduled?