Regulatory Insights

from India Tax & Regulatory Services

Changes to the ECB Framework

January 19, 2019

In brief
As a part of the monetary policy announcement 1 in December 2018, the Reserve Bank of India (RBI)
indicated rationalisation and consolidation of all borrowing and lending guidelines applicable to cross
border transactions.
The RBI notified2 revised regulations and has now issued a circular3 explaining the revised framework
for External Commercial Borrowings (ECB) and rupee (INR) denominated bonds.
The key highlights of the new ECB framework are as follows:
1. Four-tier structure (Track I, II, III and INR denominated bonds) replaced with two-tier structure
(Foreign Currency loans and INR loans).
2. List of eligible borrowers and eligible lenders have been significantly expanded.
3. Late Submission Fees (LSF) introduced.
4. Sector-wise borrowing limits consolidated into a single threshold.
The key changes as per the circular have been summarised below.

In detail Investment (FDI) can  Further, the term “Indian

borrow under the ECB Entity” is defined under
Simplification of multiple
framework. FEMA 3(R) to mean a
ECB tracks
company incorporated in
 The list of eligible
 Tracks I and II under the India or a Limited Liability
borrowers shall include the
existing framework are Partnership (LLP) formed
following:
merged as “Foreign and registered in India.
Currency (FCY) − Registered entities
Key change: The list of
denominated ECB”. engaged in micro-
eligible borrowers has now
finance activities, viz.,
 Track III and INR been expanded to include all
registered not for profit
denominated bonds entities eligible to receive FDI.
companies, registered
frameworks are combined
societies/ trusts/ List of recognised lenders
as “INR denominated ECB”.
cooperatives and Non- All lenders (including in case
Key change: The earlier Government of transfer of ECBs) should be
four-tier structure has been Organisations resident of Financial Action
replaced with the aforesaid (permitted only to raise Task Force (FATF) or
two-tier structure. INR ECB). International Organisation of
List of eligible borrowers − Port Trusts, units in Securities Commissions
SEZ, SIDBI, EXIM (IOSCO) compliant country.
 All entities eligible to Bank.
receive Foreign Direct
1
Statement on Developmental and Regulatory Policies dated 5 December 2018
2
Notification No. 3(R) i.e. Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 [‘FEMA 3(R)’] dated 17
December 2018
3
A.P. (DIR Series) Circular No. 17 dated 16 January 2019

www.pwc.in
Regulatory Insights
 Multilateral and Regional
Financial Institutions, where
India is a member, also
eligible.
 Individuals are eligible only in
following cases –
− In their capacity as foreign
equity holders to the
borrower; or
− If they are subscriber to
bonds/ debentures listed
abroad.
 Foreign branches/ subsidiaries
of Indian banks -
− FCY ECB - Permissible
(except FCY convertible
bonds and FCY
exchangeable bonds);
− INR ECB – Permissible to
only participate as
arrangers/ underwriters/
market-makers/ traders
for INR denominated
bonds issued overseas
(Underwriting for
issuances by Indian banks
not permitted).
Key change: The list of
recognised lenders has been
expanded under the new
framework to allow various
lenders in the ECB space.
Minimum Average Maturity
Period (MAMP)
 ECB raised by manufacturing
companies (up to US$ 50
million per financial year) –
One year;
 ECB from foreign equity
holder (for working capital
purposes, general corporate
purposes or repayment of INR
loans) – Five years;
 Others – Three years.
Type of return/ Form Period of delay
Form ECB 2 Up to 30 calendar days from due date of submission
Form ECB 2/ Form ECB Up to three years from due date of submission/ date of INR 50,000 per year
drawdown
Form ECB 2/ Form ECB Beyond three years from due date of submission/ date of INR 100,000 per year
drawdown
2 pwc
 The call and put option, if any,
shall be exercisable only after
completion of minimum
average maturity.
Key change: The MAMP has
been de-linked from the amount
of ECB as was the case under the
previous ECB framework.
End-uses (Negative List)
 Real estate activities;
 Investment in capital market;
 Equity investment;
 Working capital purposes
except from foreign equity
holder;
 General corporate purposes
except from foreign equity
holder;
 Repayment of INR loans
except from foreign equity
holder;
 On-lending to entities for the
above activities.
Key change: While the list of
negative end-uses is the same as
the previous ECB framework, the
word “real estate activities” has
been defined under the new
framework as follows:
Real estate activities: Any real
estate activity involving own or
leased property for buying, selling
and renting of commercial and
residential properties or land, and borrowing limits have been
also includes activities either on a replaced with a single borrowing
fee or contract basis assigning
real estate agents for
intermediating in buying, selling,
letting or managing real estate.
However, this would not include
construction/ development of
industrial parks/ integrated
township/ SEZ, purchase/ long-
term leasing of industrial land as
part of new project/
modernisation of expansion of
existing units or any activity
under ‘infrastructure sector’
definition.
All-in-cost ceiling per annum
 All-in-cost ceiling of
benchmark rate plus 450 bps
spread. The term “benchmark
rate” has been defined as
follows:
Benchmark rate: Benchmark
rate in case of foreign currency
denominated ECB/ TC (FCY
ECB/TC) refers to 6-month
London Interbank Offered Rate
(LIBOR) rate of different
currencies or any other 6-month
interbank interest rate applicable
to the currency of borrowing, for
e.g., Euro Interbank Offered Rate
(EURIBOR). Benchmark rate in
case of Rupee denominated ECB
(INR ECB) will be prevailing yield
of the Government of India
securities of corresponding
maturity.
Key change: Track-wise all-in-
cost ceiling has been replaced
with a single all-in-cost ceiling.
Sector-wise borrowing limits
A single borrowing limit of US$
750 million or equivalent per
financial year has been set under
the automatic route.
Key change: Sector-wise
limit.
Late Submission Fees
 LSF introduced for delay in
prescribed reporting (please
refer table below) under the
ECB framework.
Applicable LSF
INR 5,000
Regulatory Insights
 Non-payment of LSF will be
treated as contravention of
reporting provision and shall
be subject to compounding.
Key change: The concept of
LSF has been introduced under
the new framework.
Standard operating
procedure (SOP) for
untraceable entities
Concept of untraceable entities
introduced. In case of untraceable
entities, the Authorised Dealer
(AD) Banks have been given to
write-off the ECB and refer the
matter to Directorate of
Enforcement (DoE). The key
features are as follows:
Definition of untraceable entities
− Entity/ Auditor(s)/
Director(s)/ Promoter(s)
of entity.
− Not reachable/
responsive/ reply in
negative over email/
letters/ phone.
− For a period of not less
than two quarters with
documented
communication/
reminders numbering six
or more and it fulfils both
the following conditions:
a. Entity not found to be
operative at the
2 pwc
registered office address
as per records available
with the AD Bank or not
found to be operative
during the visit by the
officials of the AD Bank
or any other agencies
authorised by the AD
bank;
b. Entities have not
submitted the Statutory
Auditor’s Certificate for
last two years or more.
Actions to be taken
− File Revised Form ECB, if
required, and last Form
ECB 2 Return without
certification from
company with
‘UNTRACEABLE ENTITY’
written in bold on top.
The outstanding
amount will be treated
as written-off from
external debt liability
of the country but may
be retained by the
lender in its books for
recovery through
judicial/ non-judicial
means;
− Fresh ECB application by
the entity should not be
examined/ processed by
the AD bank;
− DoE should be informed;
and
− No inward remittance or
debt servicing will be
permitted under the
automatic route.
Key change: SOP for
untraceable entities has been
introduced under the new
framework.
Other parameters
There are no significant changes
to the other parameters vis-à-vis
the previous framework.
The takeaways
Expansion of list of ECB
borrowers to cover all entities
eligible to receive FDI (including
LLPs in eligible sectors) and
expansion of list of ECB lenders
to cover all entities that are
resident of IOSCO and FATF
compliant jurisdictions are
significant steps towards
liberalisation of the ECB
framework. This liberalisation
should give a further boost to the
RBI and Government’s efforts
towards attracting capital inflows
into the economy.
Let’s talk
For a deeper discussion of how
this issue might affect your
business, please contact your
local PwC advisor
Regulatory Insights

Our Offices

Ahmedabad Bengaluru Chennai

1701, 17th Floor, Shapath V, 6th Floor 8th Floor
Opp. Karnavati Club, Millenia Tower ‘D’ Prestige Palladium Bayan
S G Highway, 1 & 2, Murphy Road, Ulsoor, 129-140 Greams Road
Ahmedabad – 380051 Bangalore – 560 008 Chennai – 600 006
Gujarat Karnataka Tamil Nadu
+91-79 3091 7000 +91-80 4079 7000 +91 44 4228 5000

Hyderabad Kolkata Mumbai

Plot no. 77/A, 8-2-624/A/1, 4th 56 & 57, Block DN. PwC House
Floor, Road No. 10, Banjara Hills, Ground Floor, A- Wing Plot No. 18A,
Hyderabad – 500034 Sector - V, Salt Lake Guru Nanak Road(Station Road),
Telangana Kolkata – 700 091 Bandra (West), Mumbai – 400 050
+91-40 44246000 West Bengal Maharashtra
+91-033 2357 9101/ +91-22 6689 1000
4400 1111

Gurgaon Pune For more information

Building No. 10, Tower - C 7th Floor, Tower A - Wing 1, Contact us at
17th & 18th Floor, Business Bay, Airport Road, pwctrs.knowledgemanagement@in.pwc.com
DLF Cyber City, Yerwada, Pune – 411 006
Gurgaon – 122002 Maharashtra
Haryana +91-20 4100 4444
+91-124 330 6000

About PwC
At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 158
countries with over 250,000 people who are committed to delivering quality in assurance, advisory and tax services.
Find out more and tell us what matters to you by visiting us at www.pwc.com

In India, PwC has offices in these cities: Ahmedabad, Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai
and Pune. For more information about PwC India’s service offerings, visit www.pwc.in

PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please
see www.pwc.com/structure for further details.

©2019 PwC. All rights reserved

Follow us on:

For private circulation only

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information
contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness
of the information contained in this publication, and, to the extent permitted by law, PwCPL, its members, employees and agents accept no liability, and disclaim all
responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based
on it. Without prior permission of PwCPL, this publication may not be quoted in whole or in part or otherwise referred to in any documents.

© 2019 PricewaterhouseCoopers Private Limited. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers Private Limited (a limited liability company
in India having Corporate Identity Number or CIN : U74140WB1983PTC036093), which is a member firm of PricewaterhouseCoopers International Limited (PwCIL), each
member firm of which is a separate legal entity.