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Presentation On ECB

The document provides information on external commercial borrowings (ECB) in India. It defines ECB and outlines the two criteria for ECB eligibility - the automatic route and approval route. It describes the procedures, recognized lenders, permitted end users, amount limits, maturity periods, and other guidelines around ECB. Recent changes that removed all-in-cost ceilings and expanded eligible sectors are also summarized. Finally, benefits of ECB for both investors and borrowers are highlighted.

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D Attitude Kid
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488 views

Presentation On ECB

The document provides information on external commercial borrowings (ECB) in India. It defines ECB and outlines the two criteria for ECB eligibility - the automatic route and approval route. It describes the procedures, recognized lenders, permitted end users, amount limits, maturity periods, and other guidelines around ECB. Recent changes that removed all-in-cost ceilings and expanded eligible sectors are also summarized. Finally, benefits of ECB for both investors and borrowers are highlighted.

Uploaded by

D Attitude Kid
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Presentation

on
ECB

Presented to:
PCTE)
Definition

Commercial bank loans


Buyer’s credit
Supplier’s credit
Securitized instruments
Credit
Commercial borrowings
Investments
ECB eligibility

Two Criteria
- Automatic route
- Approval route
Automatic route

Procedure: agreement between borrower


and lender
Eligible Borrowers: - Companies
- NGOs
- SEZ units
Automatic route

Recognized lenders:
- International banks
- International capital markets
- Multilateral FIs
- Foreign collaborations
- Qualified overseas organizations
Permitted end users
Overseas direct investments
Lending to self help groups by NGOs
Approval route

Procedure: through application in


prescribed manner
Financial borrowers:
- Financial institutions
- Banks
- Housing finance companies
- Corporate for structured obligation
Recognized lenders

Foreign collaborations
Foreign equity holders
Export credit agencies
Suppliers of equipments
Multilateral FIs
Permitted end users

Investment in real sector


Overseas direct investment in joint sector
Amount

Under automatic route:


- Maximum $5Mn for NGOs
- $500Mn for other companies
Under approval route:
- No limit
Maturity

3 years for ECB up to US$ 20 million


5 years for ECB above US$ 20 million
5 years for ECB by NBFCs
All-in-Cost Ceilings

150 basis points over six month LIBOR


for maturity of 3-5 years
250 basis points over six month LIBOR
for maturity above 5 years
Others
Security
ECB proceeds
Prepayment
Refinance of existing ECBs
ECB Operations

Through notification issued by RBI


Applicable to FCCB
Only for foreign currency expenditure
Borrowing limits
Borrowing under service sector
FIIs' Investments in Government
Securities and Corporate Bonds  
Commercial source of raising funds
Huge sum of money can be raised
Foreign currency for importing capital
goods
No need for credit rating
Disadvantages

Expensive way of raising funds


Rigorous rules of usage of funds
Application for ECB
ECB guidelines

ECB policy
Average maturity
US $ 5 Mn Scheme
ECB guidelines

Exporters / Foreign Exchange Bankers


Infrastructure Projects
Long Term Borrowers
ECB guidelines

Online lending by DFTs and other


financial intermediaries
End use requirements
ECB guidelines

Proceeds from Bond’s, FRNs &


Syndicated loans
ECB entitlement for new projects
Interest rate for project financing
Structured Obligations
 In order to enable corporate to raise resources domestically
and hedge exchange rate risks, domestic rupee
denominated structured obligations are permitted to be credit
enhanced by international banks/international financial
institutions/joint venture partners.

 Such applications will be considered under the Approval


Route.
Security

Security to be provided to the overseas lender / supplier for


securing the ECBs is left to the borrower.

Creation of charge over the immovable assets and financial


securities, such as shares, in favour of the overseas lender are
subject to Regulation 8 of Notification No. FEMA 21/RB-
2000 and Regulation 3 of Notification No. FEMA 20/RB-2000
both dated 3rd May 2000.
Guarantees

Issuance of guarantee, standby letter of credit, letter of undertaking


or letter of comfort by banks, financial institutions and NBFCs
relating to ECBs in favour of overseas lender on behalf of their
constituents for their borrowings in foreign exchange is normally not
permitted.
Issuance of guarantees etc., in respect of ECBs by textile companies
for capacity expansion and modernisation are considered by RBI
under the approval route subject to prudential norms.
Guarantees
FEMA allows guarantees in very limited circumstances to
person/corporate resident outside India. A person resident in
India may give guarantee in following circumstances:
An exporting company may give a guarantee for performance
of a project outside India subject to the regulations
A company in India promoting or setting up outside India, a
joint venture company or a wholly-owned subsidiary, may
give a guarantee to or on behalf of the latter in connection with
its business
Debt Servicing, Prepayment And
Refinancing of an existing ECB
The designated AD banks have general permission to make
remittances of instalments of principal, interest and other
charges in conformity with the ECB guidelines.
Prepayment of ECBs up to USD 500 without approval of RBI
subject to compliance with minimum average maturity period,
whereas amounts exceeding USD 500 million can be prepaid
only after obtaining approval of RBI.
Debt Servicing, Prepayment And
Refinancing of an existing ECB

Existing ECB may be refinanced by raising a fresh ECB


subject to the condition that the fresh ECB is raised at a lower
all-in-cost and the outstanding maturity of the original ECB is
maintained.
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: The borrowers have been
provided with a 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 end-uses.
Recent Developments - ECB

All-in-Cost Ceilings: ECB beyond the permissible all-in-cost


ceiling can be availed of under the Approval Route.
Definition of Infrastructure expanded to include, power,
telecommunication, mining exploration and refining
Recent Changes in ECB Policies as
part of the ‘Second Stimulus Package’
The ‘all-in-cost’ ceilings on such borrowing would be removed,
under the approval route of RBI
To facilitate access to funds for the housing sector, the
‘development of integrated townships’ would be permitted as an
eligible end-use of the ECB, under the approval route of RBI
Recent Changes in ECB Policies as
part of the ‘Second Stimulus Package’
NBFCs, dealing exclusively with infrastructure financing,
would be permitted to access ECB from multilateral or
bilateral financial institutions, under the approval route of
RBI.
In order to give a boost to the corporate bond market, FII
investment limit in rupee denominated corporate bonds in
India would be increased from US $ 6 billion to US $ 15
billion.
Why ECB is attractive?
 Investor

1. ECB is for specific period, which can be as short as


three years.
2. Fixed Return, usually the rates of interest are fixed.
3. The interest and the borrowed amount are repairable.
4. No owners risk as in case of Equity Investment.
Why ECB is attractive?

 Borrower

1. No dilution in ownership.
2. Considerably large funds can be raised as per requirements of
borrower.
3. Usually only a fixed rate of interest is to be paid.
4. Easy Availability of funds because ECB is more appealing to
Investors.

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