ECB provides a wider array of Indian resident entities to raise funds on international platforms from non-resident entities. Raising funds through ECBs enables companies to meet larger requirements from international entities as compared to domestic entities. To increase the depreciating value of the Indian Rupee, RBI liberalized the regulatory regime applicable to ECBs to more forex flow in India.
What does ECB mean?
Basically, ECBs are the commercial loans raised by the eligible resident entities from the recognized non-resident entities which conform to the prescribed parameters such as the minimum maturity, permitted and non-permitted end-uses, maximum all-in-cost ceiling, etc.
ECB’s can be raised through the three tracks which are as follows:
TRACK 1- Under this track, the foreign currency denominated ECB can be raised with the minimum average maturity period of three to five years.
TRACK 2- This track allows raising foreign currency denominated ECB with the minimum average maturity period of ten years.
TRACK 3- Indian Rupee denominated ECB can be raised with the minimum average maturity period of three to five years.
What are the Forms of ECB?
The ECBs can be raised in the form of loans including bank loans, Floating or fixed rate bonds/ debentures/notes/preference shares (does not include fully or compulsorily convertible instruments), buyers credit, suppliers credit, foreign currency convertible bonds, foreign currency exchangeable bonds and financial lease.
Who are the Eligible Borrowers?
- In case of Foreign currency denominated ECB:
The entities eligible to receive FDI can raise funds through ECB. Further, the entities including Port Trusts, Units in SEZ, SIDBI, and EXIM Bank of India are also eligible to raise funds through ECB.
- In case of Indian Rupee denominated ECB:
All the entities eligible to raise ECB through Foreign currency can also raise Indian Rupee denominated ECB along with registered entities engaged in micro-finance.
Who are the Recognized Lenders?
The Following non-resident lenders are the recognized lenders under the ECB:
- a) Multilateral and Regional Financial Institutions where India is a member country will also be considered as recognized lenders;
- b) Individuals as lenders can only be permitted if they are foreign equity holders or for subscription to bonds/debentures listed abroad; and
- c) Foreign branches/subsidiaries of Indian banks are permitted as recognized lenders only for FCY ECB (except FCCBs and FCEBs). Foreign branches/subsidiaries of Indian banks, subject to applicable prudential norms, can participate as arrangers/underwriters/market makers/traders for Rupee denominated Bonds issued overseas.
Provided that, underwriting by foreign branches/subsidiaries of Indian banks for issuances by Indian banks will not be allowed.
What are the permitted purposes for which ECB can be raised?
- Working capital purposes and general corporate purposes with a minimum average maturity period of ten years.
- Repayment of rupee loans which are availed domestically for capital expenditure with a minimum average maturity period of seven years.
- Repayment of rupee loans that are availed domestically for purposes other than capital expenditure with a minimum average maturity period of ten years.
Provided that, Call and put options, if any, shall not be exercisable prior to completion of minimum average maturity period.
What is the procedure for raising ECB?
All the ECB can be raised under the automatic route if they conform to the prescribed parameters and limit to USD 1.5 billion or equivalent, from the previous limit of USD 750 million.
For cases related to the Approval Route, the borrower may approach the RBI with an application in the prescribed format for the examination through their AD category I bank. Provided that where ECB proposals above the specified threshold limit are received, such proposals are placed before the Empowered Committee formed by the Reserve Bank. After taking into account all the recommendations of the empowered committee, RBI will take the final decision which may provide for approval or rejection of such ECB proposal.
Even the Start-ups are also eligible to raise ECB under the Automatic Route; Hence the legal framework governing ECB’s allows the Indian Investors to access a greater market for raising funds subject to the guidelines and regulations of the government.
Have ECB Concerns?
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