2. ECB Framework
• ECBs are commercial loans raised from Non Residents
• By Eligible Resident Borrowers
• From Recognized Non Resident Lenders
• Complying with Regulatory Parameters
• Parameters apply in totality and not on a standalone basis
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3. Latest changes in the framework
•Merging of Tracks:
Track I and Track II merged as “Foreign Currency ECB”
Track III and Rupee denominated Bonds as “Rupee ECBs”.
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4. Latest changes in the framework
Eligible Borrowers
• All entities eligible to receive Foreign Direct Investment (FDI)
• Port Trusts, Units in SEZ, SIDBI and EXIM Bank; and
• Registered entities engaged in Micro Finance –
Not for Profit Companies
Registered Societies, Trusts, Co-operatives
Non Government Organizations (NGOs)
(Permitted to raise only INR ECBs)
• Whether LLP is an eligible borrower?
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5. Latest changes in the framework –
Special Dispensation
• An Entity which is under restructuring Scheme or Corporate
Insolvency Resolution Process can raise ECB ONLY if Specifically
permitted under the Resolution plan
• Eligible Borrowers under the Framework who are participating in the
Corporate Insolvency Resolution Process under IBC,2016 as
resolution applicants can raise ECBs
• From all Recognised lenders Except Foreign Branches and
Subsidiaries of Indian Banks
• For repayment of Rupee Term Loans of the Target Company
• Only through Approval Route with Specific Prior approval of RBI
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6. Latest changes in the framework
Recognised Lenders
• Lender should be Resident of FATF or IOSCO compliant country,
• Multilateral and Regional Financial Institutions where India is a Member
country.
• Individuals as lenders only permitted if they are foreign equity holders or
subscribers to bonds / debentures listed abroad.
• Foreign Branches / Subsidiaries of Indian Banks only for FCY ECBs (Except
FCCBs and FCEBs).
They can participate as arrangers / underwriters / market-makers / traders for
Rupee Denominated Bonds issued overseas.
However, they cannot act as underwriters for issuances by Indian Banks.
Not Permitted for entities under Restructuring/Applicants under CIRP
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7. Latest changes in the framework
Minimum Average Maturity Period (MAMP)
• All ECBs will be 3 years
Except:
ECB raised from foreign equity holder and utilised for working capital,
general corporate purposes or repayment of Rupee Loans – MAMP – 5 Years.
Manufacturing Sector for ECBs up to USD 50 Million per financial year –
MAMP 1 year.
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Minimum Average Maturity Period Calculation
https://rbidocs.rbi.org.in/rdocs/Content/PDFs/12EC160712_A6.pdf
8. Latest changes in the framework
Untraceable Entities (Standard Operating Procedure):
Any borrower who has raised ECB will be treated as ‘untraceable entity’, if
entity/auditor(s)/director(s)/ promoter(s) of entity are not reachable/responsive/reply
in negative over email/letters/phone for a period of not less than two quarters with
documented communication/ reminders numbering 6 or more and it fulfils both of the
following conditions:
a) Entity not found to be operative at the registered office address as per records
available with the AD Bank or not found to be operative during the visit by the
officials of the AD Bank or any other agencies authorized by the AD bank for the
purpose;
b) Entities have not submitted Statutory Auditor’s Certificate for last two years or more;
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9. Latest changes in the framework
Untraceable Entities (Standard Operating Procedure):
In case of “untraceable entities”, who have contravened reporting provisions for past eight quarters or
more, the followings actions are to be undertaken by the Authorized Dealer Bank:
a) File Revised Form ECB, if required, and last Form ECB 2 Return without certification from company with
‘UNTRACEABLE ENTITY’ written in bold on top. The outstanding amount will be treated as written-off
from external debt liability of the country but may be retained by the lender in its books for recovery
through judicial/ non-judicial means;
b) No fresh ECB application by the entity should be examined/processed by the AD bank;
c) Directorate of Enforcement should be informed whenever any entity is designated ‘UNTRACEABLE
ENTITY’; and
d) No inward remittance or debt servicing will be permitted under auto route.
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10. Available Routes
• Automatic Route - AD Banks
• Approval Route - RBI
• Regulation Parameters are mostly similar in Approval Route, however
some requests entertained by RBI are:
Amount of Borrowing
Eligibility of Borrowers
End Uses
Restructuring Entities and Applicants Under CIRP
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11. Types of ECB
• Loans including Bank Loans
• Securitized Instruments
Floating / Fixed Rate Bonds
Floating / Fixed Rate Notes
Floating / Fixed Rate Debentures
• Trade Credits beyond 3 years
• FCCBs and FCEBs
• Financial Leases
ECB framework will not apply to NCDs subscribed by FPIs.
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12. All in cost (AIC)
• Bench Mark Rate plus 450 bps spread.
• AIC includes Rate of interest, other fees, expenses, charges, guarantee fees, Export Credit
Agency (ECA) charges whether paid in FCY or INR.
• In case of fixed rate loans, the swap cost plus Spread should not be more than floating rate
plus applicable spread.
• AIC will not include commitment fees and withholding tax payable in INR.
• FCCB issue expenses should not exceed 4% of the issue size and 2% in case of private
placement.
• AIC has to be paid by borrower without taking recourse to the drawdown of ECB / Trade
Credit.
• ECB/TC proceeds cannot be used for payment of interest/charges.
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13. Limit and Leverage
• All eligible borrowers – upto USD 750 Million or equivalent per financial year
under Automatic Route.
• In case of FCY ECB from direct foreign equity holder the
ECB Liability : Equity - 7 : 1
Exception:
This ratio will not apply if all outstanding ECBs is up to or less than
USD 5 Million or equivalent.
• All eligible entities are also governed by guidelines on debt equity ratio by
the Sectoral or Prudential Regulator concerned.
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14. Limit and Leverage
For calculating ECB : Equity Ratio
Equity = Paid up Capital
+
Free Reserves
+
Share Premium
received in Foreign Currency
(as per the latest Audited Balance Sheet)
Note: In case there are more than one Foreign Direct Investor then the
Share Premium brought in by the ECB Lender Foreign Direct
Investor shall only be taken into Equity calculation
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15. End uses – Negative List
• Real estate activities:
Any activity involving own or leased property for buying, selling and renting of
commercial and residential properties or land
and
Also includes activities either on a fee or contract basis assigning real estate
agents for intermediating in buying, selling, letting or managing real estate.
However the above prohibition will not apply in case of:
Construction / development of:
Industrial parks;
Integrated townships;
SEZ;
Purchase / Long term leasing of industrial land as a part of new project or
modernisation of expansion of existing units or any activities under Infrastructure
Definition.
(Harmonised Master List of Infrastructure Sub Section vide Notification
F.No.13/06/2009 – INF)
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16. End uses – Negative List
• Real estate activities as explained above
• Investment in capital market.
• Equity investment.
• Working capital purposes except from foreign equity holder.
• General corporate purposes except from foreign equity holder.
• Repayment of Rupee loans except from foreign equity holder and
Restructuring Entities and Applicants under CIRP
• On-lending to entities for the above activities.
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17. Currency of Borrowing
•FCY ECB – Any freely convertible foreign currency
•INR ECB – Indian Rupee
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18. Security
• Immovable Property
• Movable Property / Assets
• Financial Securities
• Corporate Guarantee
• Personal Guarantee
• Rupee Accounts with Escrow Arrangements or debt service
reserve account.
The charge / pledge should be co-terminus with the ECB.
Guarantee, SBLC, letter of Undertaking or Letter of Comfort or
any type of Guarantee by an Indian
Bank
Financial Institution
NBFC not permitted
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19. Parking of Proceeds
• ECB proceeds meant for forex expenditure can be parked abroad
pending utilization.
• Can be invested in approved securities abroad pending
utilization.
• ECB proceeds meant for Rupee expenditure should be repatriated
immediately.
• Can be kept in a fixed deposit for maximum period of 12 months
cumulatively and should always be in unencumbered position.
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20. Procedure
• For Approval Route cases - Form ECB through Authorized Dealer Bank
should be sent to RBI.
• For Automatic Route cases – Form ECB should be submitted to
Authorized Dealer Bank.
• Drawdown should happen after obtaining Loan Registration Number
(LRN) from RBI.
• ECB 2 Returns should be submitted monthly till the end of loan tenure.
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21. Routing of Funds Raised Abroad
(AP (DIR Series) Circular No.41 dt.25.11.2014)
i. Indian companies or their ADs are not allowed to issue any direct or
indirect guarantee or create any contingent liability or offer any security
in any form for such borrowings by their overseas holding / associate /
subsidiary / group companies except for the purposes explicitly
permitted in the relevant Regulations.
ii. Further, funds raised abroad by overseas holding / associate / subsidiary
/ group companies of Indian companies with support of the Indian
companies or their ADs as mentioned at (i) above cannot be used in
India unless it conforms to the general or specific permission granted
under the relevant Regulations.
iii. Indian companies or their ADs using or establishing structures which
contravene the above shall render themselves liable for penal action as
prescribed under FEMA.
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