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External Commercial Borrowings (ECB): ECBs refer to commercial loans in the form of bank loans, securitized instruments (e.g. floating rate notes and fixed rate bonds, non-convertible, optionally convertible or partially convertible preference shares), buyers’ credit, suppliers’ credit availed of from non-resident lenders with a minimum average maturity of3 years.
The following types of proposals for ECBs are covered under the Automatic Route.
i) Eligible Borrowers
(a) Corporates, including those in the hotel, hospital, software sectors (registered under the Companies Act,1956), Non-Banking Finance Companies (NBFCs) - Infrastructure Finance Companies (IFCs), NBFCs - Asset Finance companies (AFCs), Small Industries Development Bank of India (SIDBI) except financial intermediaries, such as banks, financial institutions (FIs), Housing Finance Companies (HFCs) and Non-Banking Financial Companies (NBFCs), other than those specifically allowed by Reserve Bank, are eligible to raise ECB. Individuals, Trusts (other than those engaged in Micro-finance activities) and Non-Profit making organizations are not eligible to raise ECB.
(b) Units in Special Economic Zones (SEZ) are allowed to raise ECB for their own requirement. However, they cannot transfer or on-lend ECB funds to sister concerns or any unit in the Domestic Tariff Area (DTA).
(c) NBFCs-IFCs are permitted to avail of ECBs for on-lending to the infrastructure sector as defined under the ECB policy.
(d) NBFCs-AFCs are permitted to avail of ECBs for financing the import of infrastructure equipment for leasing to infrastructure projects.
(e) Non-Government Organizations (NGOs) engaged in micro finance activities are eligible to avail of ECB.
(f) Micro Finance Institutions (MFIs) engaged in micro finance activities are eligible to avail of ECBs. MFIs registered under the Societies Registration Act,1860, MFIs registered under Indian Trust Act,1882, MFIs registered either under the conventional state-level cooperative acts, the national level multi-state cooperative legislation or under the new state-level mutually aided cooperative acts (MACS Act) and not being a co-operative bank, Non-Banking Financial Companies (NBFCs) categorized as ‘Non Banking Financial Company-Micro Finance Institutions’ (NBFC-MFIs) and complying with the norms prescribed as per Circular DNBS.CC.PD.No.250/03.10.01/2011-12 dated December02,2011 and Companies registered under Section25 of the Companies Act,1956 and are involved in micro finance activities.
(g) NGOs engaged in micro finance and MFIs registered as societies, trusts and co-operatives and engaged in micro finance (i) should have a satisfactory borrowing relationship for at least3 years with a scheduled commercial bank authorized to deal in foreign exchange in India and (ii) would require a certificate of due diligence on `fit and proper’ status of the Board/ Committee of management of the borrowing entity from the designated AD bank.
(h) Small Industries Development Bank of India (SIDBI) can avail of ECB for on-lending to MSME sector, as defined under the Micro, Small and Medium Enterprises Development (MSMED) Act,2006.
(i) Corporates in the services sector viz. hotels, hospitals and software sector.
(j) Companies in miscellaneous services sector (only from direct / indirect equity holders and group companies). Companies in miscellaneous services mean companies engaged in training activities (but not educational institutes), research and development activities and companies supporting infrastructure sector. Companies doing trading business, companies providing logistics services, financial services and consultancy services are, however, not covered under the facility).
(k) Holding Companies / Core Investment Companies (CICs) coming under the regulatory framework of the Reserve Bank are permitted to raise ECB for project use in Special Purpose Vehicles (SPVs) provided the business activity of the SPV is in the infrastructure sector where “infrastructure” is defined as per the extant ECB guidelines. The infrastructure project is required to be implemented by the SPV established exclusively for implementing the project and is subject to conditionsIn case of Holding Companies that come under the Core Investment Company (CIC) regulatory framework of the Reserve Bank, the ECB availed should be within the ceiling of leverage stipulated for CICs and in case of CICs with asset size below Rs.100 crore, the ECB availed of should be on fully hedged basis.
ii) Recognised Lenders
(1) Borrowers can raise ECB from internationally recognized sources, such as (a) international banks, (b) international capital markets, (c) multilateral financial institutions (such as IFC, ADB, CDC, etc.) / regional financial institutions and Government owned development financial institutions, (d) export credit agencies, (e) suppliers of equipments, (f) foreign collaborators and (g) foreign equity holders [other than erstwhile Overseas Corporate Bodies (OCBs)].
(2) NGOs engaged in micro finance and MFIs registered as societies, trusts and co-operatives can avail of ECBs from (a) international banks, (b) multilateral financial institutions, (c) export credit agencies (d) overseas organisations and (e) individuals.
(3) NBFC-MFIs will be permitted to avail of ECBs from multilateral institutions, such as IFC, ADB etc./ regional financial institutions/international banks / foreign equity holders and overseas organizations.
(4) Companies registered under Section25 of the Companies Act,1956 and are engaged in micro finance will be permitted to avail of ECBs from international banks, multilateral financial institutions, export credit agencies, foreign equity holders, overseas organizations and individuals.
(5) A "foreign equity holder" to be eligible as “recognized lender” under the automatic route would require minimum holding of paid-up equity in the borrower company as set out below:
For ECB up to USD5 million - minimum paid-up equity of25 per cent held directly by the lender (all outstanding ECBs including the proposed one),
For ECB more than USD5 million - minimum paid-up equity of25 per cent held directly by the lender and ECB liability-equity ratio not exceeding4:1(all outstanding ECBs including the proposed one),
ECB from indirect equity holders is permitted provided the indirect equity holding in the Indian company by the lender is at least51 per cent.
ECB from a group company is permitted provided both the borrower and the foreign lender are subsidiaries of the same parent.
Besides the paid-up capital, free reserves (including the share premium received in foreign currency) as per the latest audited balance sheet shall be reckoned for the purpose of calculating the ‘equity’ of the foreign equity holder in the term ECB liability-equity ratio. Where there are more than one foreign equity holders in the borrowing company, the portion of the share premium in foreign currency brought in by the lender(s) concerned shall only be considered for calculating the ECB liability-equity ratio for reckoning quantum of permissible ECB.
For calculating the ‘ECB liability’, not only the proposed borrowing but also the outstanding ECB from the same foreign equity holder lender shall be reckoned.
(6) Overseas organizations and individuals providing ECB need to comply with the following safeguards:
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 regulator and adheres to the Financial Action Task Force (FATF) guidelines. The certificate of due diligence should comprise the following (i) that the lender maintains an account with the bank for at least 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.
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 wherein banks are not required to adhere to Know Your Customer (KYC) guidelines are not eligible to extend ECB.
iii) Amount and Maturity
The maximum amount of ECB which can be raised by a corporate other than those in the hotel, hospital and software sectors, and corporate in miscellaneous services sector is USD750 million or its equivalent during a financial year.
Corporates in the services sector viz. hotels, hospitals and software sector and miscellaneous services serctor are allowed to avail of ECB up to USD200 million or its equivalent in a financial year for meeting foreign currency and/ or Rupee capital expenditure for permissible end-uses. The proceeds of the ECBs should not be used for acquisition of land.
NGOs engaged in micro finance activities and Micro Finance Institutions (MFIs) can raise ECB up to USD10 million or its equivalent during a financial year. Designated AD bank has to ensure that at the time of drawdown the forex exposure of the borrower is fully hedged.
NBFC-IFCs can avail of ECB up to75 per cent of their owned funds (ECB including outstanding ECBs) and must hedge75 per cent of their currency risk exposure.
NBFC-AFCs can avail of ECBs up to75 per cent of their owned funds (ECB including outstanding ECBs) subject to a maximum of USD200 million or its equivalent per financial year with a minimum maturity of5 years and must hedge the currency risk exposure in full.
SIDBI can avail of ECB to the extent of50 per cent of their owned funds including the outstanding ECB, subject to a ceiling of USD500 million per financial year.
ECB up to USD20 million or its equivalent in a financial year with minimum average maturity of three years. An illustration of average maturity period calculation is provided at Annex VI.
ECB above USD20 million or equivalent and up to USD750 million or its equivalent with a minimum average maturity of five years.
ECB up to USD20 million or equivalent can have call/put option provided the minimum average maturity of three years is complied with before exercising call/put option.
All eligible borrowers can avail of ECBs designated in INR from ‘foreign equity holders’ as per the extant ECB guidelines.
NGOs engaged in micro finance activities can avail of ECBs designated in INR, from overseas organizations and individuals as per the extant guidelines.
iv) All-in-cost ceilings
All-in-cost includes rate of interest, other fees and expenses in foreign currency except commitment fee, pre-payment fee, and fees payable in Indian Rupees. The payment of withholding tax in Indian Rupees is excluded for calculating the all-in-cost. The existing all-in-cost ceilings for ECB are as under:
Average Maturity Period
All-in-cost Ceilings over6 month LIBOR*
Three years and up to five years
350 basis points
More than five years
500 basis points
* for the respective currency of borrowing or applicable benchmark
In the case of fixed rate loans, the swap cost plus margin should be the equivalent of the floating rate plus the applicable margin.
The rate of penal interest should not be more than2 per cent of the all-in-cost of ECB.
v) End-use
ECB can be raised for investment such as import of capital goods (as classified by DGFT in the Foreign Trade Policy), new projects, modernization/expansion of existing production units in real sector - industrial sector including small and medium enterprises (SME), infrastructure sector and specified service sectors, viz. hotel, hospital and software and miscellaneous services sector as given at I(A)(i)(j) above. Infrastructure sector is defined as (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 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 than1 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.
Overseas Direct Investment in Joint Ventures (JV)/ Wholly Owned Subsidiaries (WOS) subject to the existing guidelines on Indian Direct Investment in JV/ WOS abroad.
Utilization of ECB proceeds is permitted for first stage as well as subsequent stages of acquisition of shares in the disinvestment process to the public under the Government’s disinvestment programme of PSU shares.
Interest during Construction (IDC) for Indian companies which are in the infrastructure sector, where “infrastructure” is defined as per the extant ECB guidelines, subject to IDC being capitalized and forming part of the project cost.
For lending to self-help groups or for micro-credit or for bonafide micro finance activity including capacity building by NGOs engaged in micro finance activities.
NBFC-IFCs can avail of ECBs only for on-lending to the infrastructure sector as defined under the ECB policy.
NBFC-AFCs can avail of ECBs only for financing the import of infrastructure equipment for leasing to infrastructure projects.
Maintenance and operations of toll systems for roads and highways for capital expenditure provided they form part of the original project.
SIDBI can on lend to the borrowers in the MSME sector for permissible end uses, having natural hedge by way of foreign exchange earnings. SIDBI may on-lend either in INR or in foreign currency (FCY). In case of on-lending in INR, the foreign currency risk shall be fully hedged by SIDBI.
Refinancing of Bridge Finance (including buyers’ / suppliers’ credit) availed of for import of capital goods by companies in Infrastructure Sector
ECB is allowed for Import of services, technical know-how and payment of license fees. The companies in the manufacturing and infrastructure sectors may import services, technical know-how and payment of license fees as part of import of capital goods subject to certain conditions.
ECB for general corporate purposes from direct foreign equity holders by companies in manufacturing, infrastructure, hotels, hospitals and software sector: Eligible borrowers can avail ECB from their direct foreign equity holder company with a minimum average maturity of7 years for general corporate purposes (which includes working capital) subject to the following conditions:
Minimum paid-up equity of25 per cent should be held directly by the lender;
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 Repayment of the principal shall commence only after completion of minimum average maturity of7 years.
No prepayment will be allowed before maturity.
vi) Payment for Spectrum Allocation
(a) Relaxation for the successful Bidders of2G spectrum Re-auction
(i) to make the upfront payment initially out of Rupee loans availed of from the domestic lenders and refinance such Rupee loans with a long-term ECB provided such ECB is raised within a period of18 months from the date of sanction of such Rupee loans for the stated purpose from the domestic lenders. (ii) Availing of short term foreign currency loan in the nature of bridge finance for the purpose of making upfront payment and replace the same with a long term ECB subject to condition that the long term ECB is raised within a period of18 months from the date of drawdown of the bridge finance. (iii) ECB can be availed of from their ultimate parent company without any maximum ECB liability-equity ratio subject to the condition that the lender holds minimum paid-up equity of25 per cent in the borrower company, either directly or indirectly. (iv) Such ECB cannot be raised from overseas branches / subsidiaries of Indian banks.
vii) End-uses not permitted
Other than the purposes specified hereinabove, the borrowings shall not be utilized for any other purpose including the following purposes, namely:
For on-lending or investment in capital market or acquiring a company (or a part thereof) in India by a corporate [investment in Special Purpose Vehicles (SPVs), Money Market Mutual Funds (MMMFs), etc., are also considered as investment in capital markets].
for real estate sector,
for general corporate purpose which includes working capital (other than what has been given at I(A)(v)(l) above) and repayment of existing rupee loans Note: The proceeds of the ECBs should not be used for acquisition of land.
viii) Guarantees
Issuance of guarantee, standby letter of credit, letter of undertaking or letter of comfort by banks, Financial Institutions and Non-Banking Financial Companies (NBFCs) from India relating to ECB is not permitted.
ix) Security
The choice of security to be provided to the lender/supplier is left to the borrower. However, creation of charge over immoveable assets and financial securities, such as shares, in favour of the overseas lender is subject to Regulation8 of Notification No. FEMA21/RB-2000 dated May3,2000 and Regulation3 of Notification No. FEMA20/RB-2000 dated May3,2000, respectively, as amended from time to time. AD Category - I banks have been delegated powers to convey ‘no objection’ under the Foreign Exchange Management Act (FEMA),1999 for creation of charge on immovable assets, financial securities and issue of corporate or personal guarantees in favour of overseas lender / security trustee, to secure the ECB to be raised by the borrower.
Before according ‘no objection’ under FEMA,1999, AD Category - I banks should ensure and satisfy themselves that (i) the underlying ECB is strictly in compliance with the extant ECB guidelines, (ii) there exists a security clause in the loan agreement requiring the borrower to create charge on immovable assets / financial securities / furnish corporate or personal guarantee, (iii) the loan agreement has been signed by both the lender and the borrower and (iv) the borrower has obtained Loan Registration Number (LRN) from the Reserve Bank.
On compliance with the above conditions, AD Category - I banks may convey their ‘no objection’, under FEMA,1999 for creation of charge on immovable assets, financial securities and issue of personal or corporate guarantee, subject to the conditions indicated below:
a) The ‘no objection’ for creation of charge on immovable assets may be conveyed under FEMA,1999 either in favour of the lender or the security trustee, subject to the following conditions:
‘No objection’ shall be granted only to a resident ECB borrower.
The period of such charge on immovable assets has to be co-terminus with the maturity of the underlying ECB.
Such ‘no objection’ should not be construed as a permission to acquire immovable asset (property) in India, by the overseas lender / security trustee.
In the event of enforcement / invocation of the charge, the immovable asset (property) will have to be sold only to a person resident in India and the sale proceeds shall be repatriated to liquidate the outstanding ECB.
b) AD Category – I banks may convey their 'no objection' under FEMA,1999 to the resident ECB borrower for pledge of shares of the borrowing company held by promoters as well as in domestic associate companies of the borrower to secure the ECB subject to the following conditions:
The period of such pledge shall be co-terminus with the maturity of the underlying ECB.
In case of invocation of pledge, transfer shall be in accordance with the extant FDI policy.
A certificate from the Statutory Auditor of the company that the ECB proceeds have been / will be utilized for the permitted end-use/s.
c) The ‘no objection’ to the resident ECB borrower for issue of corporate or personal guarantee under FEMA,1999 may be conveyed after obtaining:
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 or in individual capacity.
Specific requests from individuals to issue personal guarantee indicating details of the ECB.
Ensuring that the period of such corporate or personal guarantee is co-terminus with the maturity of the underlying ECB.
AD Category – I banks may invariably specify that the ‘no objection’ is issued from the foreign exchange angle under the provisions of FEMA,1999 and should not be construed as an approval by any other statutory authority or Government under any other law/ regulation. If further approval or permission is required from any other regulatory / statutory authority or Government under the relevant laws / regulations, the applicant should take the approval of the authority concerned before undertaking the transaction. Further, the 'no objection' should not be construed as regularizing or validating any irregularities, contravention or other lapses, if any, under the provisions of FEMA or any other laws or regulations.
x) Parking of ECB proceeds
Borrowers are permitted to either keep ECB proceeds abroad or to remit these funds to India, pending utilization for permissible end-uses.
The proceeds of the ECB raised abroad meant for Rupee expenditure in India, such as, local sourcing of capital goods, on-lending to Self-Help Groups or for micro credit, payment for spectrum allocation, etc. should be repatriated immediately for credit to the borrowers’ Rupee accounts with AD Category I banks in India. In other words, ECB proceeds meant only for foreign currency expenditure can be retained abroad pending utilization. The rupee funds, however, will not be permitted to be used for investment in capital markets, real estate or for inter-corporate lending.
ECB proceeds parked overseas can be invested in the following liquid assets (a) deposits or Certificate of Deposit or other products offered by banks rated not less than AA (-) by Standard and Poor/Fitch IBCA or Aa3 by Moody’s (b) Treasury bills and other monetary instruments of one year maturity having minimum rating as indicated above, and (c) deposits with overseas branches / subsidiaries of Indian banks abroad. The funds should be invested in such a way that the investments can be liquidated as and when funds are required by the borrower in India.
The primary responsibility to ensure that the ECB proceeds meant for Rupee expenditure in India are repatriated to India for credit to their Rupee accounts with AD Category- I banks in India is that of the borrower concerned and any contravention of the ECB guidelines will be viewed seriously and will invite penal action under the Foreign Exchange Management Act (FEMA),1999. The designated AD bank is also required to ensure that the ECB proceeds meant for Rupee expenditure are repatriated to India immediately after drawdown.
xi) Prepayment
Prepayment of ECB up to USD500 million may be allowed by AD banks without prior approval of Reserve Bank subject to compliance with the stipulated minimum average maturity period as applicable to the loan.
xii) Refinancing of an existing ECB
The 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.
xiii) Debt Servicing
The designated AD bank has the general permission to make remittances of installments of principal, interest and other charges in conformity with the ECB guidelines issued by Government / Reserve Bank of India from time to time.
xiv) Corporates Under Investigation
All entities against which investigations / adjudications / appeals by the law enforcing agencies are pending may avail of ECBs as per the current norms, if they are otherwise eligible, notwithstanding the pending investigations / adjudications / appeals, 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.
xv) Procedure
Borrowers may enter into loan agreement complying with the ECB guidelines with recognised lender for raising ECB under the Automatic Route without the prior approval of the Reserve Bank. 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 III (i) (b).
i) Eligible Borrowers
The following types of proposals for ECB are covered under the Approval Route:
On lending by the EXIM Bank for specific purposes will be considered on a case by case basis.
Banks and financial institutions which had participated in the textile or steel sector restructuring package as approved by the Government are also permitted to the extent of their investment in the package and assessment by the Reserve Bank based on prudential norms. Any ECB availed for this purpose so far will be deducted from their entitlement.
ECB with minimum average maturity of5 years by Non-Banking Financial Companies (NBFCs) 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-IFCs are permitted to avail of ECB, beyond75 per cent of their owned funds (including the outstanding ECBs) for on-lending to the infrastructure sector as defined under the ECB policy.
NBFCs-AFCs are permitted to avail of ECB, beyond75 per cent of their owned funds (including outstanding ECBs) to finance the import of infrastructure equipment for leasing to infrastructure projects.
Foreign Currency Convertible Bonds (FCCBs) by Housing Finance Companies satisfying the following minimum criteria: (i) the minimum net worth of the financial intermediary during the previous three years shall not be less than Rs.500 crore, (ii) a listing on the BSE or NSE, (iii) minimum size of FCCB is USD100 million and (iv) the applicant should submit the purpose / plan of utilization of funds.
Special Purpose Vehicles, or any other entity notified by the Reserve Bank, set up to finance infrastructure companies / projects exclusively, will be treated as Financial Institutions and ECB by such entities will be considered under the Approval Route.
Multi-State Co-operative Societies engaged in manufacturing activity and satisfying the following criteria i) the Co-operative Society is financially solvent and ii) the Co-operative Society submits its up-to-date audited balance sheet.
SEZ developers can avail of ECBs for providing infrastructure facilities within SEZ, as defined in the extant ECB policy (as given at I(A)(v)(a) above).
Developers of National Manufacturing Investment Zones (NMIZs) can avail of ECB for providing infrastructure facilities within SEZ, as defined in the extant ECB policy (as given at I(A)(v)(a) above).
Eligible borrowers under the automatic route other than corporates in the services sector viz. hotel, hospital and software can avail of ECB beyond USD750 million or equivalent per financial year.
Corporates in the services sector viz. hotels, hospitals, and software sectors and in miscellaneous services (as given at I(A)(i)(l) above)can avail of ECB beyond USD200 million or equivalent per financial year. ECB for corporates in miscellaneous services is permitted only from direct / indirect equity holders and group companies Small Industries Development Bank of India (SIDBI) is eligible to avail of ECB for on-lending to MSME sector, as defined under the Micro, Small and Medium Enterprises Development (MSMED) Act,2006, beyond50 per cent of their owned funds, subject to a ceiling of USD500 million per financial year provided such on-lending by SIDBI shall be to the borrowers’ for permissible end-use and having natural hedge by way of foreign exchange earnings. SIDBI may on-lend either in INR or in foreign currency (FCY). In case of on-lending in INR, the foreign currency risk shall be fully hedged by SIDBI.
Low Cost Affordable Housing Projects: Developers/builders / Housing Finance Companies (HFCs) / National Housing Bank (NHB) may avail of ECB for low cost affordable housing projects [refer to para I B (vii) ibid]. Corporates under Investigation: All entities against which investigations / adjudications / appeals by the law enforcing agencies are pending, may avail of ECBs as per the current norms, if they are otherwise eligible, notwithstanding the pending investigations / adjudications / appeals, 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, the Reserve Bank of India while approving the proposal shall intimate the concerned agencies by endorsing the copy of the approval letter.
Holding Companies / Core Investment Companies (CICs) coming under the regulatory framework of the Reserve Bank are permitted to raise ECB for project use in Special Purpose Vehicles (SPVs) provided the business activity of the SPV is in the infrastructure sector where “infrastructure” is defined as per the extant ECB guidelines. The infrastructure project is required to be implemented by the SPV established exclusively for implementing the project and is subject to conditions In case of Holding Companies that come under the Core Investment Company (CIC) regulatory framework of the Reserve Bank, the ECB availed should be within the ceiling of leverage stipulated for CICs and in case of CICs with asset size below Rs.100 crore, the ECB availed of should be on fully hedged basis.
Cases falling outside the purview of the automatic route limits and maturity period as indicated at paragraph I A (iii).
ii) Recognised Lenders
Borrowers can raise ECB from internationally recognised sources, such as (i) international banks, (ii) international capital markets, (iii) multilateral financial institutions (such as IFC, ADB, CDC, etc.)/ regional financial institutions and Government owned development financial institutions, (iv) export credit agencies, (v) suppliers' of equipment, (vi) foreign collaborators and (vii) foreign equity holders (other than erstwhile OCBs).Overseas branches / subsidiaries of Indian banks are not recognised as lenders in case the end use is repayment / refinance of Rupee loans raised from domestic banking system under any of the schemes under the ECB policy..
A "foreign equity holder" to be eligible as “recognized lender” under the approval route would require minimum holding of paid-up equity in the borrower company as set out below: (i) For ECB up to USD5 million - minimum paid-up equity of25 per cent held directly by the lender (all outstanding ECBs including the proposed one); (ii) For ECB more than USD5 million - minimum paid-up equity of25 per cent held directly by the lender and ECB liability-equity ratio not exceeding7:1 (all outstanding ECBs including the proposed one);
ECB from indirect equity holders provided the indirect equity holding by the lender in the Indian company is at least51 per cent;
ECB from a group company provided both the borrower and the foreign lender are subsidiaries of the same parent.
Besides the paid-up capital, free reserves (including the share premium received in foreign currency) as per the latest audited balance sheet shall be reckoned for the purpose of calculating the ‘equity’ of the foreign equity holder in the term ECB liability-equity ratio. Where there are more than one foreign equity holder in the borrowing company, the portion of the share premium in foreign currency brought in by the lender(s) concerned shall only be considered for calculating the ECB liability-equity ratio for reckoning quantum of permissible ECB.
For calculating the ‘ECB liability’, not only the proposed borrowing but also the outstanding ECB from the same foreign equity holder lender shall be reckoned.
The total outstanding stock of ECBs (including the proposed ECBs) from a foreign equity lender should not exceed seven times the equity holding, either directly or indirectly of the lender (in case of lending by a group company, equity holdings by the common parent would be reckoned).
iii) Amount and Maturity
Eligible borrowers under the automatic route other than corporates in the services sector viz. hotel, hospital, software and miscellaneous services can avail of ECB beyond USD750 million or equivalent per financial year. Corporates in the services sector viz. hotels, hospitals, software sector and miscellaneous services are allowed to avail of ECB beyond USD200 million or its equivalent in a financial year for meeting foreign currency and/ or Rupee capital expenditure for permissible end-uses. The proceeds of the ECBs should not be used for acquisition of land.
An illustration for calculation of average maturity period is provided at Annex VI.
iv) All-in-cost ceilings
All-in-cost includes rate of interest, other fees and expenses in foreign currency except commitment fee, pre-payment fee and fees payable in Indian Rupees. The payment of withholding tax in Indian Rupees is excluded for calculating the all-in-cost. The existing all-in-cost ceilings for ECB are as under:
Average Maturity Period
All-in-cost Ceilings over6 month LIBOR*
Three years and up to five years
350 basis points
More than five years
500 basis points
* for the respective currency of borrowing or applicable benchmark
In the case of fixed rate loans, the swap cost plus the margin should be the equivalent of the floating rate plus the applicable margin.
v) End-use
a. ECB can be raised only for investment [such as import of capital goods (as classified by DGFT in the Foreign Trade Policy), implementation of new projects, modernization/expansion of existing production units] in the real sector - industrial sector including small and medium enterprises (SME) and infrastructure sector - in India. Infrastructure sector is as given at I(A)(v)(a) above.
b. Overseas Direct Investment in Joint Ventures (JV)/Wholly Owned Subsidiaries (WOS) subject to the existing guidelines on Indian Direct Investment in JV/WOS abroad.
c. Interest During Construction (IDC) for Indian companies which are in the infrastructure sector, as defined under the extant ECB guidelines subject to IDC being capitalized and forming part of the project cost.
d. The payment by eligible borrowers in the Telecom sector, for spectrum allocation may, initially, be met out of Rupee resources by the successful bidders, to be refinanced with a long-term ECB, under the approval route, subject to the following conditions:
The ECB should be raised within12 months from the date of payment of the final instalment to the Government;
The designated AD - Category I bank should monitor the end-use of funds;
Banks in India will not be permitted to provide any form of guarantees; and
All other conditions of ECB, such as eligible borrower, recognized lender, all-in-cost, average maturity, etc. should be complied with.
ECB should not be raised from overseas branches / subsidiaries of Indian banks.
e. The first stage as well as subsequent stages of acquisition of shares in the disinvestment process to the public under the Government’s disinvestment programme of PSU shares.
f. Repayment of Rupee loans availed of from domestic banking system: Indian companies which are in the infrastructure sector (except companies in the power sector), as defined under the extant ECB guidelines , are permitted to utilise25 per cent of the fresh ECB raised by them towards refinancing of the Rupee loan/s availed by them from the domestic banking system, subject to the following conditions:
at least75 per cent of the fresh ECB proposed to be raised should be utilised for capital expenditure towards a 'new infrastructure' project(s)
in respect of remaining25 per cent, the refinance shall only be utilized for repayment of the Rupee loan availed of for 'capital expenditure' of earlier completed infrastructure project(s); and
the refinance shall be utilized only for the Rupee loans which are outstanding in the books of the financing bank concerned.
ECB should not be raised from overseas branches / subsidiaries of Indian banks. Companies in the power sector are permitted to utilize up to40 per cent of the fresh ECB raised by them towards refinancing of the Rupee loan/s availed by them from the domestic banking system subject to the condition that at least60 per cent of the fresh ECB proposed to be raised should be utilized for fresh capital expenditure for infrastructure project(s).
g. ECB is allowed for Import of services, technical know-how and payment of license fees. The companies in the manufacturing and infrastructure sectors may import services, technical know-how and payment of license fees as part of import of capital goods subject to certain conditions.
h. Bridge Finance: Indian companies which are in the infrastructure sector, as defined under the extant ECB policy are permitted to import capital goods by availing of short term credit (including buyers’ / suppliers’ credit) in the nature of 'bridge finance', with RBI’s prior approval provided the bridge finance shall be replaced with a long term ECB as per extant ECB guidelines.
i. ECB for working capital for civil aviation sector: Airline companies registered under the Companies Act,1956 and possessing scheduled operator permit license from DGCA for passenger transportation are eligible to avail of ECB for working capital. Such ECBs will be allowed based on the cash flow, foreign exchange earnings and the capability to service the debt and the ECBs can be raised with a minimum average maturity period of three years.
The overall ECB ceiling for the entire civil aviation sector would be USD one billion and the maximum permissible ECB that can be availed by an individual airline company will be USD300 million. This limit can be utilized for working capital as well as refinancing of the outstanding working capital Rupee loan(s) availed of from the domestic banking system. ECB availed for working capital/refinancing of working capital as above will not be allowed to be rolled over. The foreign exchange for repayment of ECB should not be accessed from Indian markets and the liability should be extinguished only out of the foreign exchange earnings of the borrowing company. The scheme will be available upto March31,2015.
j. ECB for general corporate purposes from direct foreign equity holders: Eligible borrowers can avail ECB under approval route from their direct foreign equity holder company with a minimum average maturity of7 years for general corporate purposes (which includes working capital) subject to the following conditions:
Minimum paid-up equity of25 per cent should be held directly by the lender;
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
Repayment of the principal shall commence only after completion of minimum average maturity of7 years. No prepayment will be allowed before maturity.
vi) Repayment of Rupee loans and/or fresh Rupee capital expenditure for companies with consistent forex earnings – USD10 billion scheme
a) Indian companies in the manufacturing, infrastructure sector and hotel sector (with a total project cost of INR250 crore or more irrespective of geographical location for hotel sector), can avail of ECBs for repayment of outstanding Rupee loans availed of for capital expenditure from the domestic banking system and/or fresh Rupee capital expenditure provided they are consistent foreign exchange earners during the past three financial years and not in the default list/caution list of the Reserve Bank of India.
The overall ceiling for such ECBs shall be USD10 (ten) billion and the maximum ECB that can be availed by an individual company or group, as a whole, under this scheme will be restricted to USD3 billion. Further, the maximum permissible ECB that can be availed of by an individual company will be limited to75 per cent of the average annual export earnings realized during the past three financial years or50 per cent of the highest foreign exchange earnings realized in any of the immediate past three financial years, whichever is higher. In case of Special Purpose Vehicles (SPVs), which have completed at least one year of existence from the date of incorporation and do not have sufficient track record/past performance for three financial years, the maximum permissible ECB that can be availed of will be limited to50 per cent of the annual export earnings realized during the past financial year.
The foreign exchange for repayment of ECB should not be accessed from Indian markets and the liability arising out of ECB should be extinguished only out of the foreign exchange earnings of the borrowing company.
b) Within the overall ceilings given at (a) above, Indian companies in the aforesaid sectors (as given at (vi) (a) above) which have established Joint Venture (JV) / Wholly Owned Subsidiary (WOS) / have acquired assets overseas in compliance with extant regulations under FEMA,1999 can avail ECB for repayment of all term loans having average residual maturity of5 years and above / credit facilities availed of by Indian companies from domestic banks for overseas investment in JV/WOS, in addition to ‘Capital Expenditure’. The maximum permissible ECB that can be availed of by an individual company will be limited to75 per cent of the average annual export earnings realized during the past three financial years or75 per cent of the assessment made about the average 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. The ECB availed should be repaid out of forex earnings from the overseas JV / WOS / assets.
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 under this scheme.
Under the USD10 billion scheme, ECB cannot be raised from overseas branches / subsidiaries of Indian banks.
vii) ECB for Low Cost Affordable Housing:
(a) For the purpose of ECB, a low cost affordable housing project is a project in which at least60 per cent of the permissible FSI would be for units having maximum carpet area up to60 square meters. Slum rehabilitation projects will also be eligible under the low cost affordable housing scheme, the eligibility of which would be based on the parameters to be set by the Central Sanctioning and Monitoring Committee of the Affordable Housing in Partnership Scheme (AHP) constituted for the purpose. ECB proceeds shall be utilized only for low cost affordable housing projects and shall not be utilized for acquisition of land.
(b) Developers/builders may avail of ECB for low cost affordable housing projects provided they are companies registered under the Companies Act,1956, having minimum3 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. The ECB should be swapped into Rupees for the entire maturity on fully hedged basis.
(c) Housing Finance Companies (HFCs) can also avail of ECB for financing prospective owners of low cost affordable housing units. HFCs registered with the National Housing Bank (NHB) and operating in accordance with the regulatory directions and guidelines issued by NHB are eligible to avail of ECB for financing low cost affordable housing units. The minimum Net Owned Funds (NOF) of HFCs for the past three financial years should not be less than INR300 crore. Borrowing through ECB should be within overall borrowing limit of16 (sixteen) times of their Net Owned Fund (NOF) and the net non-performing assets (NNPA) should not exceed2.5 % of the net advances. The maximum loan amount sanctioned to the individual buyer will be capped at INR25 lakh subject to the condition that the cost of the individual housing unit shall not exceed INR30 lakh. The ECB should be swapped into Rupees for the entire maturity on fully hedged basis. HFCs while making the applications, shall submit a certificate from NHB that the availment of ECB is for financing prospective owners of individual units for the low cost affordable housing and ensure that the interest rate spread charged by them to the ultimate buyer is reasonable.
(d) NHB is also eligible to raise ECB for financing low cost affordable housing units of individual borrowers. Further, in case, a developer of low cost affordable housing project not being able to raise ECB directly as envisaged above, National Housing Bank is permitted to avail of ECB for on-lending to such developers which satisfy the conditions prescribed to developers / builders subject to the interest rate spread set by RBI. ECB proceeds shall be utilized only for low cost affordable housing projects and shall not be utilized for acquisition of land.
(e) Interest rate spread to be charged by NHB may be decided by NHB taking into account cost and other relevant factors. 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.
(f) 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.
(g) Developers / builders / HFCs / NHB will not be permitted to raise Foreign Currency Convertible Bonds (FCCBs) under this scheme.
(h) An aggregate limit of USD1(one) billion each for the financial year2013-14 and2014-15 is fixed for ECB under the low cost affordable housing scheme which includes ECBs to be raised by developers/builders and NHB/specified HFCs.
viii)3G Spectrum Allocation
The payment for3G spectrum allocation, initially met out of Rupee resources raised domestically from banks by the successful bidders and are still outstanding in telecom operator’s books of account is allowed to be refinanced with a long-term ECB, till March31,2014.
ix) End-uses not permitted
Other than the purposes specified hereinabove, the borrowings shall not be utilised for any other purpose including the following purposes, namely:
(a) For on-lending or investment in capital market or acquiring a company (or a part thereof) in India by a corporate except Infrastructure Finance Companies (IFCs), banks and financial institutions eligible under paragraph I (B) (i) (a), (b), (d), (e), (f), (m) and (n).
(b) For real estate.
(c) For and general corporate purpose which includes working capital [except as stated at I(B)(v)(i) and (j)] and repayment of existing Rupee loans [except as stated at I(B)(v) (d), (f) and (vi)].
x) Guarantee
Issuance of guarantee, standby letter of credit, letter of undertaking or letter of comfort by banks, financial institutions and NBFCs relating to ECB is not normally permitted. Applications for providing guarantee/standby letter of credit or letter of comfort by banks, financial institutions relating to ECB in the case of SME will be considered on merit subject to prudential norms.
With a view to facilitating capacity expansion and technological upgradation in Indian textile industry, issue of guarantees, standby letters of credit, letters of undertaking and letters of comfort by banks in respect of ECB by textile companies for modernization or expansion of textile units will be considered under the Approval Route subject to prudential norms.
xi) Security
The choice of security to be provided to the lender / supplier is left to the borrower. However, creation of charge over immovable assets and financial securities, such as shares, in favour of the overseas lender is subject to Regulation8 of Notification No. FEMA21/RB-2000 dated May3,2000 and Regulation3 of Notification No. FEMA20/RB-2000 dated May3,2000 as amended from time to time, respectively. Powers have been delegated to Authorised Dealer Category I banks to issue necessary NOCs under FEMA as detailed in paragraph I (A) (x) ibid.
xii) Parking of ECB proceeds
Borrowers are permitted to either keep ECB proceeds abroad or to remit these funds to India, pending utilization for permissible end-uses.
The proceeds of the ECB raised abroad meant for Rupee expenditure in India, such as, local sourcing of capital goods, on-lending to Self-Help Groups or for micro credit, payment for spectrum allocation, repayment of rupee loan availed from domestic banks, etc. should be repatriated immediately for credit to their Rupee accounts with AD Category I banks in India. In other words, ECB proceeds meant only for foreign currency expenditure can be retained abroad pending utilization. The rupee funds, however, will not be permitted to be used for investment in capital markets, real estate or for inter-corporate lending.
ECB proceeds parked overseas can be invested in the following liquid assets (a) deposits or Certificate of Deposit or other products offered by banks rated not less than AA (-) by Standard and Poor/ Fitch IBCA or Aa3 by Moody’s; (b) Treasury bills and other monetary instruments of one year maturity having minimum rating as indicated above and (c) deposits with overseas branches / subsidiaries of Indian banks abroad. The funds should be invested in such a way that the investments can be liquidated as and when funds are required by the borrower in India.
The primary responsibility to ensure that the ECB proceeds meant for Rupee expenditure in India are repatriated to India for credit to their Rupee accounts with AD Category- I banks in India is that of the borrower concerned and any contravention of the ECB guidelines will be viewed seriously and will invite penal action under the Foreign Exchange Management Act (FEMA),1999. The designated AD bank is also required to ensure that the ECB proceeds meant for Rupee expenditure are repatriated to India immediately after drawdown.
xiii) Prepayment
(a) Prepayment of ECB beyond USD500 million will be considered by the Reserve Bank subject to compliance with the stipulated minimum average maturity period as applicable to the loan. would be considered by the Reserve Bank under the Approval Route.
xiv) Refinancing/rescheduling of an existing ECB
The cases where the existing ECB is proposed to be refinanced by raising a fresh ECB at a lower all-in-cost are considered under the approval route if the average maturity period of the fresh ECB is more than the residual maturity of the existing ECB.
xv) Debt Servicing
The designated AD bank has general permission to make remittances of installments of principal, interest and other charges in conformity with the ECB guidelines issued by Government / Reserve Bank from time to time.
xvi) Procedure
Applicants are required to submit an application in form ECB through designated AD bank to the Chief General Manager-in-Charge, Foreign Exchange Department, Reserve Bank of India, Central Office, External Commercial Borrowings Division, Mumbai –400001, along with necessary documents.
xvii) Empowered Committee
Reserve Bank has set up an Empowered Committee to consider proposals coming under the Approval Route.
An external commercial borrowing is an instrument used in India to facilitate the access to foreign money by Indian corporations and PSUs. ECBs include commercial bank loans, buyers' credit, suppliers' credit, securitised instruments such as floating rate notes and fixed rate bonds etc. .
