deepak dayal-dayal legal
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ECB Policy & ProcedureECB Policy & ProcedureDate: 31Date: 31stst May, 2010May, 2010
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` External Commercial Borrowings (ECBs) include bank loans,
suppliers' and buyers' credits, fixed and floating rate bonds (withoutconvertibility) and borrowings from private sector windows of
multilateral Financial Institutions such as International Finance
Corporation. Euro-issues include Euro-convertible bonds and GDRs
` In India, External Commercial Borrowings are being permitted by
the Government for providing an additional source of funds to
Indian corporate and PSUs for financing expansion of existing
capacity and as well as for fresh investment, to augment theresources available domestically. ECBs can be used for any purpose
(rupee-related expenditure as well as imports) except for
investment in stock market and speculation in real estate
` Commercial bank loans, buyers credit, suppliers credit, securitized
instruments such as floating rate notes, fixed rate bonds etc., creditfrom official export credit agencies, commercial borrowings from
the private sector window of multilateral financial institutions such
as IFC, ADB, AFIC, CDC etc. and Investment by Foreign Institutional
Investors (FIIs) in dedicated debt funds
What is ECB
Includes the
Following
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` The department of Economic Affairs, Ministry of Finance,
Government of India with support of Reserve Bank of India,monitors and regulates Indian firms access to global capital markets.
From time to time, they announce guidelines on policies and
procedures for ECB and Euro-issues.
` The important aspect of ECB policy is to provide flexibility in
borrowings by Indian corporate, at the same time maintainingprudent limits for total external borrowings. The guiding principles
for ECB Policy are to keep maturities long, costs low, and encourage
infrastructure and export sector financing which are crucial for
overall growth of the economy.
` The ECB policy focuses on three aspects:
Eligibility criteria for accessing external markets. The total volume of borrowings to be raised and their maturity
structure.
End use of the funds raised.
Regulator
ECBs Guiding
Principles
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AutomaticAutomaticRouteRoute
ApprovalApprovalRouteRoute
ELIGIBLE BORROWERSELIGIBLE BORROWERS
AMOUNT AND MATURITYAMOUNT AND MATURITY
ALLALL--ININ--COST CEILINGSCOST CEILINGS
END USEEND USE
ENDEND--USES NOT PERMITTEDUSES NOT PERMITTED
GUARANTEESGUARANTEES
SECURITYSECURITY
PARKING OF ECB PROCEEDSPARKING OF ECB PROCEEDS
PREPAYMENTPREPAYMENT
REFINANCING OF AN EXISTING ECBREFINANCING OF AN EXISTING ECB
DEBT SERVICINGDEBT SERVICING
PROCEDUREPROCEDURE
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Corporate including those in hotel,
hospital, and software sectors except
financial intermediaries, Housing Finance
Companies (HFCs) and Non-Banking
Financial Companies (NBFCs) are eligibleto raise ECB.
Individuals,Trusts and Non-Profit making
organizations are not eligible to raise ECB.
Financial institutions dealing exclusively
with infrastructure or export finance, on a
case by case basis
Banks and financial institutions which had
participated in the textile or steel sectorrestructuring package
ECB with minimum average maturity of 5
years by NBFCs, which are exclusively
involved in financing of the infrastructure
sector, can avail of ECBs
Foreign Currency Convertible Bonds
(FCCBs) by housing finance companiessatisfying the minimum criteria
AutomaticAutomatic
RouteRoute
ApprovalApproval
RouteRoute
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Units in Special Economic Zones (SEZ) are
allowed to raise ECB for their own
requirement.
Non-Government Organizations (NGOs)
engaged in micro finance activities areeligible to avail ECB.
Special Purpose Vehicles, or any other
entity notified by the Reserve Bank, set up
to finance infrastructure companies /
projects exclusively
Multi-State Co-operative Societies engagedin manufacturing activity satisfying the
SEZ developers can avail of ECBs for
providing infrastructure facilities within
SEZ, as defined in the extant ECB policy
Corporate which have violated the extant
ECB policy and are under investigation by
Reserve Bank and / or Directorate ofEnforcement, are allowed to avail ECB only
under the Approval route
AutomaticAutomatic
RouteRoute
ApprovalApproval
RouteRoute
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International banks & international capital
markets,
Multilateral financial institutions (such as
IFC, ADB, CDC, etc.,
Export credit agencies Suppliers of equipment
Foreign collaborators, and
Foreign equity holders
International banks international capital
markets multilateral financial institutions
export credit agencies, suppliers' of
equipment foreign collaborators, and
foreign equity holders Foreign equity holder in certain cases
Corporate can avail of ECB of an additional
amount of USD 250 million with average
maturity of more than 10 years under the
approval route, over and above the
existing limit of USD 500 million under the
automatic route, during a financial year.
AutomaticAutomatic
RouteRoute
ApprovalApproval
RouteRoute
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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. However, the payment ofwithholding tax in Indian Rupees is
excluded for calculating the all-in-cost
The all-in-cost ceilings for ECB are
reviewed from time to time
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.
Moreover, the payment of withholding taxin Indian Rupees is excluded for calculating
the all-in-cost.
The all-in-cost ceilings for ECB are indicated
from time to time. The all in- cost ceilings
have been dispensed with until December
31,2009.
AutomaticAutomatic
RouteRoute
ApprovalApproval
RouteRoute
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Utilization of ECB proceeds is permitted
for first stage acquisition of shares in the
disinvestment process and also in the
mandatory second stage offer to the
public under the Governmentsdisinvestment programmed of PSU
shares.
Payment for obtaining license/permit for
3G Spectrum
For lending to self-help groups or for
micro-credit or for bonafide micro finance
activity including capacity building byNGOs engaged in micro finance activities.
Premature buyback of FCCBs
The first stage acquisition of shares in the
disinvestment process and also in the
mandatory second stage offer to the public
under the Governments disinvestment
programmed of PSU shares ECB can be raised by corporate engaged in
the development of integrated township as
defined by Ministry of Commerce and
Industry, DIPP, SIA
AutomaticAutomatic
RouteRoute
ApprovalApproval
RouteRoute
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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, in favor of the overseas lenderis subject to Regulation of FEMA
AD Category - I banks have been
delegated powers to convey no
objection under the FEMA 1999 for
creation of charge on immovable assets,
financial securities and issue of corporate
or personal guarantees in favor ofoverseas lender, to secure the ECB to be
raised by the borrower
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 favor of theoverseas lender is subject to Regulation as
amended from time to time, respectively.
Powers have been delegated to Authorized
Dealer Category I banks to issue necessary
'no objection' under FEMA
AutomaticAutomatic
RouteRoute
ApprovalApproval
RouteRoute
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Borrowers are permitted to either keep
ECB proceeds abroad or to remit these
funds to India, pending utilization for
permissible end-uses.
ECB proceeds parked overseas can beinvested in liquid assets The funds should
be invested in such a way that the
investments can be liquidated as and
when funds are required by the borrower
ECB funds may also be remitted to India
for credit to the borrowers Rupee
accounts with AD Category - I banks inIndia, pending utilization for permissible
end-uses
Borrowers are permitted to either keep
ECB proceeds abroad or to remit these
funds to India, pending utilization for
permissible end-uses.
ECB proceeds parked overseas can beinvested in liquid assets The funds should
be invested in such a way that the
investments can be liquidated as and when
funds are required by the borrower
ECB funds may also be remitted to India for
credit to the borrowers Rupee accounts
with AD Category - I banks in India,pending utilization for permissible end-
uses
AutomaticAutomatic
RouteRoute
ApprovalApproval
RouteRoute
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Prepayment of ECB up to USD 500 million
may be allowed by AD banks without
prior approval of the Reserve Bank
subject to compliance with the stipulated
minimum average maturity period asapplicable to the loan
Borrowers are permitted to either keep
ECB proceeds abroad or to remit these
funds to India, pending utilization for
permissible end-uses.
ECB proceeds parked overseas can beinvested in liquid assets The funds should
be invested in such a way that the
investments can be liquidated as and when
funds are required by the borrower
ECB funds may also be remitted to India for
credit to the borrowers Rupee accounts
with AD Category - I banks in India,pending utilization for permissible end-
uses
AutomaticAutomatic
RouteRoute
ApprovalApproval
RouteRoute
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The existing ECB may be refinanced by
raising a fresh ECB subject to the
conditions that the fresh ECB is raised at a
lower all-in-cost and the outstanding
maturity of the original ECB is maintained
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
AutomaticAutomatic
RouteRoute
ApprovalApproval
RouteRoute
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Borrowers may enter into loan agreement
with recognized lender for raising ECB
under Automatic Route complying with
the ECB guidelines without prior approval
of the Reserve Bank. The borrower mustobtain a Loan Registration Number (LRN)
from the Reserve Bank before drawing
down the ECB.
For allotment of Loan Registration
Number (LRN), borrowers are required to
submit Form 83, in duplicate, certified by
the Company Secretary (CS) or CharteredAccountant (CA) to the designated AD
bank
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,
along with necessary documents
AutomaticAutomatic
RouteRoute
ApprovalApproval
RouteRoute
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The borrower can draw-down the loan
only after obtaining the LRN from DSIM,
Reserve Bank
Borrowers are required to submit ECB-2
Return certified by the designated ADbank on monthly basis so as to reach
DSIM, Reserve Bank within seven working
days from the close of month to which it
relates
Same as previous slide
AutomaticAutomatic
RouteRoute
ApprovalApproval
RouteRoute
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India Inc raises $2.82 billion through ECB, FCCBs in AprilIndia Inc raises $2.82 billion through ECB, FCCBs in April
After crossing the $4After crossing the $4--billion (Rs 18,540 crore) mark in March, the money raised by Indianbillion (Rs 18,540 crore) mark in March, the money raised by Indian
companies through external commercial borrowing (ECB) and foreign currency convertiblecompanies through external commercial borrowing (ECB) and foreign currency convertible
bonds (FCCBs) dipped to $ 2.82 billion (Rs 13,056.6 crore) in April.bonds (FCCBs) dipped to $ 2.82 billion (Rs 13,056.6 crore) in April.
During the calendar year up to April Indian companies raised a total of $ 10.65 billionDuring the calendar year up to April Indian companies raised a total of $ 10.65 billion
(around Rs 48,990 crore) through ECB and FCCBs as compared to $ 3.2 billion in the(around Rs 48,990 crore) through ECB and FCCBs as compared to $ 3.2 billion in the
corresponding period last year, according to the data released by the Reserve Bank of Indiacorresponding period last year, according to the data released by the Reserve Bank of India
In April last year, Indian companies availed of foreign loans worth $298 million (Rs1,379.74In April last year, Indian companies availed of foreign loans worth $298 million (Rs1,379.74
crore).crore).
Vodafone Essar, the global telecom operator, was the biggest borrower in April, raising $ 1.47Vodafone Essar, the global telecom operator, was the biggest borrower in April, raising $ 1.47
billion (Rs 6,806.1 crore) from eight transactions for import of local capital goods.billion (Rs 6,806.1 crore) from eight transactions for import of local capital goods.
National Aviation Company of India, the second highest borrower raised $ 376 million (RsNational Aviation Company of India, the second highest borrower raised $ 376 million (Rs
1,740.8 crore) while Shipping Corporation of India raised $ 260 million (Rs 1,203.8).1,740.8 crore) while Shipping Corporation of India raised $ 260 million (Rs 1,203.8).
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