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external commercial borrowing
external commercial borrowing
external commercial borrowing
external commercial borrowing
external commercial borrowing
external commercial borrowing
external commercial borrowing
external commercial borrowing
external commercial borrowing
external commercial borrowing
external commercial borrowing
external commercial borrowing
external commercial borrowing
external commercial borrowing
external commercial borrowing
external commercial borrowing
external commercial borrowing
external commercial borrowing
external commercial borrowing
external commercial borrowing
external commercial borrowing
external commercial borrowing
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external commercial borrowing

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  • India’s total external debt stock was US $ 251.4 billion at the end of december 2009 Total long term debt has rose to 82 % Short term loans was 18%
  • Transcript

    • 1. <ul><li>What is external commercial borrowing? </li></ul><ul><li>ECB is defined as commercial loans [in the form of bank loans, buyers’ credit, suppliers’ credit, securitized instruments (e.g. floating rate notes and fixed rate bonds, CP)] availed from non-resident lenders with minimum average maturity of 3 years </li></ul><ul><li>Regulators: </li></ul><ul><li>The department of Economic Affairs, Ministry of Finance, Government of India with support of Reserve Bank of India. </li></ul>
    • 2. <ul><li>Raising funds from other country is cheap </li></ul><ul><li>Investment and resource availability </li></ul><ul><li>Expansion of projects </li></ul><ul><li>Fixed rate of interest </li></ul><ul><li>Alliances </li></ul><ul><li>Can not be used for investment in stocks and real estate sector </li></ul>
    • 3. <ul><li>Annual cap is maximum amount which can be borrowed during one financial year. </li></ul><ul><li>The cap was $8.3 BN in 2000 which is further raised to $40 BN in 2010 in move to make availability of funds for rapidly recovering economy. </li></ul>
    • 4. <ul><li>Commercial bank loans </li></ul><ul><li>Buyer’s and suppliers credit </li></ul><ul><li>Securitized instruments such as floating rate notes, govt. bonds </li></ul><ul><li>Credit from official export credit agencies </li></ul><ul><li>Aid from institutions such as IFC, ADB, AFIC, CDC </li></ul><ul><li>Foreign institutional investors invested in debt funds </li></ul>
    • 5. <ul><li>Loan from foreign equity holder </li></ul><ul><li>Lines of credit from foreign banks and institutions </li></ul><ul><li>Financial lease </li></ul><ul><li>Import loans </li></ul><ul><li>FCCB’s </li></ul><ul><li>Non convertible, partially convertible and optionally convertible debentures and preference shares </li></ul><ul><li>Asset backed securities, Mortgage backed securities. </li></ul>
    • 6. &nbsp;
    • 7. <ul><li>Approval Route </li></ul><ul><li>Financial institutions dealing with infra or export finance, textile or steel sector restructuring </li></ul><ul><li>Multi-state cooperatives engaged in manufacturing activities </li></ul><ul><li>NGO in microfinance activities </li></ul><ul><li>Corporates in service sector for import of capital goods </li></ul><ul><li>Automatic Route </li></ul><ul><li>- Indian companies (except NBFC’s, Financial institutions, GO) </li></ul><ul><li>SEZ is permitted </li></ul><ul><li>Individuals, trusts not allowed. </li></ul>
    • 8. <ul><li>International banks, international capital markets, multilateral financial institutions such as IFC, ADB, CDC) </li></ul><ul><li>Foreign equity holder can also be lender </li></ul><ul><li>-person must hold atleast 25% equity capital </li></ul><ul><li>-debt-equity ratio shoud not exceed 25%, in case of approval route it may exceed 25% if RBI permits </li></ul><ul><li>Individual lender has to acquire certificate of due diligence </li></ul>
    • 9. <ul><li>For Automatic route </li></ul><ul><li>Amount upto $20 mn or equivalent- 3 years </li></ul><ul><li>Amount exceeding $20 mn to $500 mn- 5 years </li></ul><ul><li>Maximum amount eligible during one financial year- $ 500 MN </li></ul><ul><li>For Automatic Route </li></ul><ul><li>Additional amount of $250 mn with maturity over 10 years </li></ul><ul><li>ECB upto $ 100 mn for infrastructure projects and industrial sector </li></ul><ul><li>ECB upto $50 mn for rupee capital expenditure </li></ul><ul><li>For NGO’s in microfinance activity, amount upto $5 mn </li></ul><ul><li>Corporates in service sector - $ 100 mn, per borrower for import of capital goods </li></ul>
    • 10. <ul><li>Automatic Route </li></ul><ul><li>Import of capital goods in real estate sector, industrial sector </li></ul><ul><li>For infra sector </li></ul><ul><li>Overseas investment in joint ventures and wholly owned subsidies </li></ul><ul><li>Payment to govt. for obtaining license </li></ul><ul><li>Approval Route </li></ul><ul><li>Implementation of new projects, modernization and expansion of projects </li></ul><ul><li>Import of capital goods by service sector companies </li></ul><ul><li>First stage of acquisition of shares and also in second stage offer to public </li></ul><ul><li>Refinancing of existing ECB </li></ul>
    • 11. <ul><li>Issuance of guarantee, standby letter of credit, letter of undertaking or letter of comfort by banks, financial institutions and NBFCs relating to ECB’s are not permitted. </li></ul><ul><li>Issuance of guarantees in case of textiles company for expansion, modernization is permitted under RBI approval route. </li></ul><ul><li>FEMA gives guarantees to a person/corporate outside India under certain circumstances. </li></ul><ul><li>Choice of security is left with the borrower. </li></ul><ul><li>Banks have been delegated powers to NOC certificate. </li></ul><ul><li>Transactions are controlled and secured by FEMA act. </li></ul>
    • 12. &nbsp;
    • 13. <ul><li>Only approved if done through foreign equity inflow </li></ul><ul><li>On permission of RBI, Govt. it may be undertaken within permitted period with </li></ul><ul><li>residual maturity upto 1 year. </li></ul><ul><li>Prepayment of 10% outstanding ECB is permitted during the life of loan once. </li></ul><ul><li>Permitted with Approval of RBI, Govt and Dept. Of Economic Affairs </li></ul>
    • 14. &nbsp;
    • 15. &nbsp;
    • 16. <ul><li>It refers to credit extended by for imports directly by overseas supplier, financial institutions for maturity less than 3 years. </li></ul><ul><li>Two types: buyers credit and suppliers credit </li></ul><ul><li>AD banks are permitted to approve trade credits upto $20 Mn per transaction with maturity period &gt;1 year and less than &lt; 3 years. </li></ul><ul><li>Not permitted above $2o mn. </li></ul><ul><li>All in cost ceiling includes: </li></ul><ul><li>Up to 1 year: 75 basis points </li></ul><ul><li>3&lt; Maturity period &gt;1: 125 basis points </li></ul>
    • 17. &nbsp;
    • 18. <ul><li>Top sectors or top raisers of ECB were power being the first followed by telecom and financial institutions . </li></ul>
    • 19. <ul><li>In 2008 the total amount raised to the tune of 2.77$ Bn </li></ul><ul><li>Power sector emerged as biggest borrower with $1.82 Bn </li></ul><ul><li>The ECB amount raised in all the other sectors were oil ($783 million), shipping $692.71 million), aviation ($585.36 million), infrastructure ($580.58 million), textiles and garments ($575.68 million), metals ($537.67 million). </li></ul>
    • 20. <ul><li>Orchid chemicals and pharmaceuticals has opted for he ECB route to partly buyback its FCCB </li></ul><ul><li>Move helped the company to bring down it s debt-equity ratio </li></ul><ul><li>ECB route gave company longer tenure of repayment </li></ul><ul><li>The company reduced its outstanding FCCB’s from $194Mn to $154Mn. </li></ul>
    • 21. <ul><li>with a liberalization stance NBFC are involved in financing of the infra sector are now allowed to raise ECB </li></ul><ul><li>With a view to give thrust to infra sector a separate category of NBFC’s were created as IFC, proposals for which will be considered through approval route </li></ul><ul><li>All in cost ceilings limits were extended </li></ul><ul><li>-For 3 to 5 years – 300bps </li></ul><ul><li>-More than five years- 500bps </li></ul><ul><li>To augment growth of agriculture definition of infrastructure was expanded </li></ul><ul><li>ECB beyond $ 100 mn in service sectors under approval route </li></ul>
    • 22. &nbsp;

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