EXTERNAL

COMMERCIAL
BORROWINGS
SCOPE OF THE PRESENTATION

• Definition of ECB • Individual borrowing Limits

• Framework- Rules, FDI Policy • Security to be provided
etc • Reporting Requirements
• Definition of Debt • Parking of ECB proceeds
• Eligible Borrowers • Conversion of ECB into equity
• Recognized Lenders • Benefits
• Routes • Disadvantages
• End-use Restrictions • Conclusion
• MAMPs
 DEFINITION AND CURRENCY OF ECB

 External Commercial Borrowings:

Borrowings Recognised lenders
Eligible borrowers
(for commercial (Recognised non-resident
(Eligible resident entities)
purpose) entities)

 External
hj commercial borrowings Currency of borrowing

1. Foreign currency Any freely convertible

ECB (FCY ECB) foreign currency
2. Indian currency
Indian Rupee
ECB (INR ECB)

 ECB governing regulations

 FORMS OF ECB

FCY ECB INR ECB

Loans including bank loans; floating/ Loans including bank loans; floating/
fixed rate notes/ bonds/ debentures (other fixed rate notes/ bonds/ debentures/
than fully and compulsorily convertible preference shares (other than fully and
instruments); Trade credits beyond 3 compulsorily convertible instruments);
years; FCCBs; FCEBs and Financial Trade credits beyond 3 years; and
Lease. Financial Lease. Also, plain vanilla Rupee
denominated bonds issued overseas
(RDBs), which can be either placed
privately or listed on exchanges as per
host country regulations.
CURRENT FRAMEWORK
GOVERNING RULES AND REGULATIONS
 Eligible instruments for investment by
person resident outside India (PROI)

Non-debt instruments Debt instruments

Now governed by
Notification issued by Ministry of Notification issued by Ministry of
Finance, Central Government Finance, Central Government
[Formerly governed by FEM(TISPRO) [Formerly governed by Reg. 5(4) read
Regulations, 2000 and FEM(ATIP) with Schedule V of FEM(TISPRO)
regulations, 2018] Regulations, 2000]

Foreign exchange management Foreign exchange management

Now governed by

(non-debt instruments) (debt instruments) Rules,2019

Rules,2019
Foreign exchange management
( mode of Payment and
reporting of non-debt
instruments) Regulations, 2019
DEFINTION OF DEBT INSTRUMENTS
GOVERNING RULES AND REGULATIONS
 FEM (NON-DEBT INSTRUMENTS) RULES, 2019.

• As per the Rule 2(f) of Foreign exchange management (non-debt instruments) Rules 2019, ‘debt instruments’
means all instruments other than non-debt instruments defined in clause (ai) of Rule 2 of Non-debt Instruments
Rules.

• The Rule 2(ai) of Non-debt Instruments Rules provides for an exhaustive list for instruments which are
considered as non-debt instruments and includes the following:
1. all investments in equity instruments in incorporated entities: public, private, listed and unlisted;
2. capital participation in LLP
3. all instruments of investment recognised in FDI policy notified from time to time;
4. investment in units of Alternative Investment Funds (AIFs), Real Estate Investment Trust (REITs) and Infrastructure
Investment Trusts (InvIts);
5. investment in units of mutual funds or Exchange- Traded Fund (ETFs) which invest more than fifty per cent in equity;
6. junior-most layer (i.e. equity tranche) of securitisation structure;
7. acquisition, sale or dealing directly in immovable property;
8. contribution to trusts;
9. depository receipts issued against equity instruments
 FEM (DEBT INSTRUMENTS) REGULATIONS, 2019 AND FDI POLICY

• Foreign Exchange Management (Debt Instruments) Regulations, 2019

As per Rule 2 (d) of the 2019 regulations, “debt instruments” means the instruments listed under schedule 1
of the regulation.

• Consolidated FDI policy, 2020

 Includes other types of Preference shares/Debentures i.e. non-convertible, optionally convertible or partially
convertible for issue of which funds have been received on or after May 1, 2007.

 Point 2 of Annexure 1 of consolidated FDI policy, 2020

ELIGIBLE BORROWERS
FCY AND INR DENOMINATED ECBS
ELIGIBLE BORROWERS (FCY DENOMINATED ECB)

1. All entities eligible to receive FDI

+
2. Other entities:
i. Port Trusts
ii. Units in SEZ
iii. SIDBI
iv. EXIM Bank of India
ELIGIBLE BORROWERS (INR DENOMINATED ECB)

1. All entities eligible to raise FCY ECB

+
2. Registered entities engaged in micro-finance activities:
a) Not for Profit companies
b) Societies/trusts/ cooperatives
c) NGOs
RECOGNISED LENDERS
FATF, IOSCO & OTHERS
RECOGNISED LENDERS (FATF & IOSCO)

The lender should be resident of a compliant country of:

1. Financial Action Task Force (FATF):

Eg- Austria, Brazil, Canada, China, France, Germany etc

2. International Organisation of Securities Commission (IOSCO):

Eg- Australia, China, Germany, India, Korea, Saudi Arabia etc.
RECOGNISED LENDERS (OTHERS)

Others:
a) Multilateral and Regional Financial Institutions where India is a member country
b) Individuals if they are:
i. foreign equity holders
ii. for subscription to bonds/debentures listed abroad
c) Foreign branches / subsidiaries of Indian banks only for FCY ECB (except FCCBs and FCEBs).
ROUTES
APPROVAL AND AUTOMATIC
AUTOMATIC ROUTE

1. Borrowers may enter into loan agreement complying with ECB guidelines with recognised lender for raising
ECB under Automatic Route without prior approval of RBI. 

2. The borrower must obtain a Loan Registration Number (LRN) from the Reserve Bank of India before drawing
down the ECB. The procedure for obtaining LRN is detailed in para II (i) (b).
APPROVAL ROUTE

 The designated AD bank has general permission to make remittances of instalments of principal, interest and other
charges in conformity with ECB guidelines issued by Government / Reserve Bank from time to time.

 Applicants are required to submit an application in form ECB through designated AD bank to the Chief General
Manager, Foreign Exchange Department, Reserve Bank of India, Central Office, External Commercial
Borrowings Division, Mumbai – 400 001, along with necessary documents.

 Reserve Bank has set up an Empowered Committee to consider proposals coming under the Approval Route.
 Automatic Route All eligible Borrowers
(without prior
approval of RBI) • In one Financial year can
Limits and Leverage raise up to USD 750
Approval Route (with Million
prior approval of
RBI)  • If Foreign Equity Holder
up to USD 5 million – no
ECB problem 
All Indian banks , All
financial institutions
and NBFC are not • If more then, ratio of
allowed. Debt and Equity should
Guarantee of ECB not be more than 7:1 

Also cannot invest in • If above USD 750

FCCB/FCEB. million then approval
route 
CONDITIONS
NEGATIVE LIST AND MAMP
ECB NEGATIVE LIST

a) Real estate activities.

b) Investment in capital market.
c) Equity investment.
d) Working capital purposes, except from foreign equity holder.
e) General corporate purposes, except from foreign equity holder.
f) Repayment of Rupee loans, except from foreign equity holder.
g) On-lending to entities for the above activities.
MINIMUM AVERAGE MATURITY PERIOD (MAMP):

MAMP will be 3 years unless specified otherwise.

Sr.
Category MAMP
No.
ECB raised by manufacturing companies up to USD 50 million or its equivalent per
(a) 1 year
financial year. 
ECB raised from foreign equity holder for working capital purposes, general corporate
(b) 5 years
purposes or for repayment of Rupee loans
ECB raised for 
4
(c) (i) working capital purposes or general corporate purposes 10 years
(ii) on-lending by NBFCs for working capital purposes or general corporate purposes
ECB raised for 
(d) (i) repayment of Rupee loans availed domestically for capital expenditure 7 years 
(ii) on-lending by NBFCs for the same purpose 
ECB raised for 
(i) repayment of Rupee loans availed domestically for purposes other than capital
(e) 10 years
expenditure
(ii) on-lending by NBFCs for the same purpose
CONDITIONS
BORROWING LIMIT, SECURITY AND REPORTING REQUIREMENTS
INDIVIDUAL BORROWING LIMIT

 All eligible borrowers/category of borrowers may raise ECB of up to USD 750 million or equivalent per financial
year.

 For Startups the amount would be limited to USD 3 million or equivalent per financial year.

 Eligibility of borrowers has been expanded to include all entities eligible to receive FDI and some others.
SECURITY PROVIDED

 The borrower covered in this Schedule may provide security to the lender / suppliers, as specified by the Reserve
Bank from time to time in terms of these regulations or under any other Regulations framed under the Act.

 The borrower may also provide corporate and / or personal guarantee as security for the borrowing, subject to
terms and conditions as specified by the Reserve Bank from time to time.

 However, banks, financial institutions and Non-Banking Finance Companies shall not provide (issue) any type of
guarantee in favour of overseas lender on behalf of their constituents for their borrowings under this Schedule,
except in accordance with specific stipulations made by the Reserve Bank.
REPORTING REQUIREMENTS

1. Loan Registration No.

2. Changes in terms and conditions of the ECB – Not later than 7 days.

3. Monthly reporting of actual transactions – Through AD Category I Bank.

4. Late Submission Fees for delayed reporting

PARKING OF ECB PROCEEDS
DOMESTIC AND ABROAD
 Parking of ECB Proceeds

If Abroad  If Domestically

Funds can be invested as

Deposits/Certificate of If for rupee expenditure
Treasury Bills/ Other
Deposits of Bank with Deposit in foreign branch immediately repatriate
monetary instruments up
minimum rating By S&P- of Indian bank India through AD CAT I
to 1year maturity
AA(-), FITCH-IBCA, Bank 
MOODY-Aa3
CHANGE IN CURRENCY OF BORROWING

In foreign currency
denomination is freely
allowed
Change in Currency of
Borrowing
In Indian rupee
denomination is not
allowed
CONCLUSION
ADVANTAGES AND DISADVANTAGES
ADVANTAGES
 The value of funds is generally lower when borrowed from external sources
 ECBs it provide an opportunity to borrow large volume of funds. Since the markets are larger when raising funds through
ECB, companies can meet larger requirements from international players in comparison with what can be achieved
through domestic players.
 External Commercial Borrowing is just a way to take a loan. It does not necessarily have to be of an equity nature, and
therefore the company’s stakes will not be diluted. Borrowers can essentially raise funds without relinquishing control as
debtors will not have any voting rights in the company.
 The investor base can be diversified by the borrower.
 ECB offers access to global markets so that borrowers have greater exposure to worldwide opportunities.
 ECB offers benefits to the economy as well. Inflows can be directed into the sector by the government of India, thereby
increasing its growth potential. For instance, a greater percentage of funding through ECB can be allowed by the
government for the SME and infrastructure industry. This aids significantly in the overall growth of the country.
 Companies can become increasingly profitable through ECB.
CONTD.

 Since ECBs are in the form of foreign currencies, they enable the corporate to have foreign currency to meet the
import of machineries etc.
 ECBs can be raised by corporates from internationally recognized sources such as banks, export credit agencies,
international capital markets etc.
 Funds are relatively available for long term
DISADVANTAGES
 Funds raised through ECB are subject to risks associated with foreign exchange rates, since the borrowing and
paying back has to be done in foreign currencies.
 Though ECB can be availed at lower rates, there are a set of guidelines and restrictions that must be followed by
both lenders and borrowers, which are governed by RBI. This increases documentation and compliance can be a
burden for a business.
 Even if a borrower has surplus liquidity, ECB cannot be prepaid before completion of the minimum average
period.
 The company could develop a lax attitude as the funds are available at lower rates. Companies could borrow
excessively due to this and it could eventually lead to higher debt on the company’s balance sheet, thereby
adversely affecting financial ratios.
 Rating agencies see companies with higher debt on their balance sheets in a negative light, which could lead to a
potential downgrade of such companies. Eventually, this could enhance the company’s cost of debt, thereby
destroying the image of the company in the market. Furthermore, the shares of the company could also be subject
to a decline in market value over a while.
QUICK RECAP
SALIENT FEATURES OF THE NEW ECB REGULATIONS
SALIENT FEATURES OF THE NEW ECB REGULATIONS

 Tracks I and II under the existing framework are merged as “Foreign Currency denominated ECB” and Track III and

Rupee Denominated Bonds framework are combined as “Rupee Denominated ECB” to replace the current four-tiered
structure.

 The list of eligible borrowers has been expanded. All entities eligible to receive foreign direct investment can borrow

under the ECB framework.

 Any entity who is a resident of a country which is FATF or IOSCO compliant will be treated as a recognized lender. This

change increases the lending options and allows various new lenders in ECB space while strengthening the AML/CFT
framework.
CONTD.

 The minimum average maturity period (MAMP) has been kept at 3 years for all ECBs, irrespective of the amount

of borrowing in lieu of various layers of MAMPs as at present, except the borrowers specifically permitted in the
circular to borrow for a shorter period.

 All eligible borrowers can now raise ECBs up to USD 750 million or equivalent per financial year under the
automatic route replacing the existing sector wise limits.

 Introduction of late submission fee for delay in prescribed reporting under the ECB framework to obviate the need

for compounding these contraventions.

THANK YOU!

QUESTIONS ARE
WELCOME.