External Commercial

Borrowing

Borrowing from outside India

ECB Includes:

Bank Loans Securitized instruments

Supplier‟s Credit

Buyer‟s credit

Loan from Foreign

Collaborator/ Foreign Equity Holder

Minimum Average Maturity must be three years

Policy

Permitted by the government as a source of finance for Corporate to expand their existing capacity & for fresh

investment

An annual cap or ceiling on access to ECB

Greater priority for projects in infrastructure, power, oil, telecom, railways, roads, & bridges, ports, Industrial parks,

urban infrastructure & export sectors

Aspects to be focused under ECB

Eligible Borrowers

Eligible lenders

Limits for raising ECB

Average Maturity

Period

All-in Cost ceiling

End Use permitted

End Use not permitted

Two ways of raising ECB

Eligible Borrowers

Automatic Route

Corporate other than hotel , hospital and

software up to USD 750

million

Corporate in service sector viz. Hotel,

Hospital, and software up to

USD 200 million

Units in Special Economic Zone

(SEZ)

NGOs engaged in micro finance

activities (Relationship of at least 3 years with scheduled

bank and granted „fit and proper‟ status

AD Bank)

Financial Intermediaries such as Banks, Financial Institutions, Housing Finance Companies,

NBFCs, Trusts, Individuals and Non Profit making organizations are not eligible to raise ECB

Recognized Lenders

International banks

International capital markets

Financial institutions such as IFC,

ADB, CDC etc.

Suppliers of equipments

Foreign collaborators

Foreign equity Holders (other than OCBs)

Individuals and Overseas organizations

Recognized Lenders

Limits for raising ECBCorporate in service sector other than

hotel , hospital and service up to USD 750 million

Corporate in service sector like Hotel, Hospital, and software up to USD 200

million

NGO engaged in micro finance activity and Micro Finance Institutions can raise

ECB up to USD 10 million or its equivalent

ECB up to USD 20 million can have call/ put option

Average maturity period

LimitsMinimum Average

Maturity period

Up to USD 20 million or its

equivalent 3 years

Above USD 20 million or

its equivalent

5 years

All-in- cost ceilings

Average Maturity

Period

All-in-cost Ceiling over

6 month LIBOR

3 years and up to 5

years

350 basis points

More than five years 500 basis points

End Use PermittedImport of Capital Goods

Executing new projects

Modernization / Expansion of existing units

In infrastructure sector such as Railways, Roads etc.

Payment of spectrum allocation

Implementation of new projects or modernization /expansion of existing production units in Real Sector, Industrial sector, Infrastructure sector

End Use PermittedFirst and second stage acquisition of shares in the disinvestment process under the Government‟s disinvestment programme of PSU shares.

Overseas direct investment in Joint Ventures (JV)/ Wholly Owned Subsidiaries (WOS).

Interest During Construction (IDC) for Indian companies which are in the infrastructure sector,.

For lending to self-help group or for micro-credit or for bona fide micro finance activity including capacity building by NGOs engaged in micro finance activities.

Eligible Borrowers

Approval Route

lending by EXIM Bank for specific purposes

ECB with minimum average

maturity of 5 years by NBFC

Corporate which have violated the extant ECB policy and are under

investigation by the RBI and/or ED

Banks and financial

institutions which had

participated in the textile or steel sector restructuring

SEZ developers

for providing infrastructur

e facilities within SEZ

Eligible Borrowers

Approval Route

Infrastructure Finance Companies

availing ECB for on-

lending to the

infrastructure sector

Corporate in service sector

other than hotel ,

hospital and service above

USD 750 million

Corporate in service sector like Hotel, Hospital,

and software up to above200 million

Foreign Currency

Convertible Bonds

(FCCBs) by Housing Finance

Companies

Multi state Cooperative

societies engaged in

manufacturing activities

Eligible Borrowers

Approval Route

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.

ECB from indirect equity holder provided

the indirect equity holding by the lender in the Indian Company is at least 51%.

ECB from a group company provided both

the borrower and the foreign lender are

subsidiaries of the same parent

Case falling outside the

purview of the automatic route

limits and maturity period.

Recognized lenders

Same as in Automatic Route

Foreign equity Holders

Minimum holding required: Paid up equity held directly by the foreign equity lender is 25% but ECB liability-equity

ratio exceeds 4:1 and up to 7:1

All-in- cost ceilings

Average Maturity

Period

All-in-cost Ceiling over

6 month LIBOR

3 years and up to 5

years

350 basis points

More than five years 500 basis points

End Use PermittedThe first stage acquisition of shares in the disinvestment process and also in the mandatory second stage offer to the public under the Government‟s disinvestment programme of PSU shares.

Bridge Finance- Indian Companies which are in the infrastructure sector are permitted to import capital goods by availing of short term credit(including buyer‟s /supplier‟s credit) in the nature of „bridge finance‟.

Repayment of Rupee loans availed from domestic banking system

Implementation of new projects or modernization /expansion of existing production units in Real Sector, Industrial Sector, Infrastructure Sector

End Use PermittedThe payment by eligible borrowers in the Telecom sector, for spectrumallocation may, initially be met out of Rupee resources by the successfulbidders, to be refinanced with a long-term ECB.

Investment for import of capital goods

Overseas direct investment in Joint Ventures (JV)/ Wholly OwnedSubsidiaries (WOS) subject to the existing guidelines on Indian DirectInvestment in JV/ WOS abroad.

Interest During Construction (IDC) for Indian companies which are in theinfrastructure sector, subject to IDC being capitalized and forming part ofthe project cost.

End Use not Permitted

for real estatesector,

For on-lending orinvestment in capitalmarket or acquiring acompany (or a partthereof) in India by acorporateexcept InfrastructureFinance Companies (IFCs),banks and financialinstitutions eligible

for working capital,general corporatepurpose and repaymentof existing Rupee loans.

Other Important points

Issuance of guarantee, standby letter of credit, letter of undertaking or letter of comfort by banks/ financial institutions/ NBFCs are not permitted.

Borrowers are permitted to keep ECB proceeds abroad or remit these to India pending utilization for permissible end uses.

ECB proceeds kept abroad can be invested in deposit/ certificate of deposits/ other products offered by banks, Treasury Bills of 1 year, deposits with overseas branches of Indian Banks - rated not less than AA(-) by S&P/ Fitch/ Moody

Other Important pointsPrepayment of ECB up to USD 500 million is allowed by AD Banks withoutapproval of RBI subject to compliance with minimum average maturitystipulation.

Existing ECB can be refinanced by raising a fresh ECB - outstanding maturityof the existing ECB is maintained and fresh ECB is raised at a lower cost.

Borrower to submit an application in form ECB through designated AD bank tothe chief General Manager-in-charge, Foreign Exchange Department, ReserveBank of India, Central Office, External Commercial Borrowings Divisions,Mumbai- 400 001, along with necessary documents.

Conversion of ECB into Equity

Conversion of ECB into equity

is permitted subject to the

following conditions:

The activity of the company is covered

under the Automatic Route for Foreign Direct Investment

Government (FIPB) approval for foreign equity participation has been obtained by

the company

The foreign equity holding after such

conversion of debt into equity is within the

sectoral cap

Pricing of shares is as per the pricing

guidelines issued under FEMA, 1999 in the

case of listed/ unlisted companies.

Reporting of ECB

Two types of conversation:

Full Conversation of Outstanding ECB into equity

Clear indication on the top of the form ECB 2 of words “ECB

wholly converted to equity”

Partial Conversation of Outstanding ECB into equity

Clear indication on the top of the form ECB 2 of words “ECB partially converted to equity”

Conversion of ECB may be reported to Reserve Bank of India by Filling of Form FC GPR to

the Reserve Bank and Form ECB 2 to DSIM within seven days from the close of month to

which it relates.

AD banks desiring to crystallize their foreign exchange

liability arising out of guarantees provided for ECB raised by

corporate in India into Rupees, may make an

application to the RBI.

Crystallization of ECB

Procedure

Submit Form 83 in duplicate, certified by the CompanySecretary or Chartered Accountant. One copy isforwarded to AD and other copies to DSIM, RBI.

Obtain Loan request number (LRN)

Draw-down the loan after obtaining LRN

Borrowers are required to submit Form ECB 2 Returnby designated AD to DSIM, RBI on monthly basis.