An insight on the liberalized regulations of foreign debt raising.

1. ECB- Overseas Borrowing made easy
SOY JOSEPH
Director, SAS Partners Corporate Advisors

2. Functions of RBI
Banker and Debt
Manager to Govt
Co-operative
Banking
Commercial
Banking
Financial
Inclusion and
Development
Financial Market
Payment and
Settlement
System
Issuer of Currency Non-banking
Foreign Exchange
Management

3. FEMA, 1999
(7 Chapter divided
into 49 Sections)
Central
Government
Notifies Rules - 5 Rules
RBI
Notifies
Regulations
-24 Regulations
- Modified by way of
Notifications
- Notifications are published in
Official Gazette
Issues A.P. (Dir
Series) Circulars
Issues Master
Directions
- 17 Master Directions
- Modified by way of A.P. (DIR
Series) Circulars and
notifications issued by RBI
Framework under FEMA

4. # Rules
1 Foreign Exchange Management (Encashment of Draft, Cheque, Instruments and Payment
of Interest) Rules, 2000
2 Foreign Exchange Management (Authentication of Documents) Rules, 2000
3 Foreign Exchange Management (Current Account Transaction) Rules, 2000
4 Foreign Exchange Management (Adjudications Proceedings and Appeal) Rules, 2000
5 Foreign Exchange Management (Compounding Proceedings) Rules, 2000
List of Rules

5. # Regulations Notification
1 FEM (Permissible Capital Account Transactions) Regulations, 2000 FEMA 1
2 FEM (Issue of security in India by a branch, office or agency of a person
resident outside India) Regulations, 2000
FEMA 2
3 FEM (Borrowing or lending) Regulations, 2018 - New FEMA 3 (R)
4 FEM (Deposit) Regulations, 2016 FEMA 5(R)
5 FEM (Export and Import of Currency) Regulations, 2015 FEMA 6 (R)
6 FEM (Acquisition and Transfer of Immovable Property Outside India)
Regulations, 2015
FEMA 7(R)
7 FEM (Guarantees) Regulations, 2000 FEMA 8
8 FEM (Realization, repatriation and surrender of foreign exchange) Regulations,
2015
FEMA 9 (R)
List of regulations

6. # Regulations Notification
9 FEM (Foreign currency accounts by a person resident in India) Regulations,
2015
FEMA 10 (R)
10 FEM (Possession and Retention of Foreign Currency) Regulations, 2015 FEMA 11(R)
11 FEM (Insurance) Regulations, 2015 FEMA 12(R)
12 FEM (Remittance of Assets) Regulations, 2016 FEMA 13 (R)
13 FEM (Manner of Receipt and Payment) Regulations, 2016 FEMA 14(R)
14 FEM (Transfer or Issue of Security by a Person Resident Outside India)
Regulations, 2017
FEMA 20(R)
15 FEM (Acquisition and Transfer of Immovable Property in India) Regulations,
2018
FEMA 21(R)
16 FEM (Est. in India of Branch or Office or Other Place of Business) Regulations,
2016
FEMA 22(R)
List of regulations (contd.)

7. # Regulations Notification
17 FEM (Export of Goods & Services) Regulations, 2015 FEMA 23(R)
18 FEM (Foreign Exchange Derivatives Contracts) Regulations, 2000 FEMA 25
19 FEM (Off-shore Banking Units) Regulations, 2002 FEMA 71
20 FEM [Withdrawal of General Permission to Overseas Corporate Bodies
(OCBs)] Regulations, 2003
FEMA101
21 FEM (Transfer or Issue of any Foreign Security) Regulations, 2004 FEMA 120
22 FEM (International Financial Services Centre) Regulations, 2015 FEMA 339
23 FEM (Regularization of assets held abroad by a person resident in India)
Regulations, 2015
FEMA 348
24 FEM (Cross Border Merger) Regulations, 2018 - New FEMA 389
List of regulations (contd.)

8. Capital Account Transaction generally
prohibited unless permitted (generally or
specifically)
Current Account Transaction generally
permitted unless prohibited
Is India moving towards complete Capital Account Convertibility?
Every transaction is either Capital or Current
Capital Account Vs Current Account

9. Important Regulations
Regulations issued by RBI Sections Master Direction
Capital Account Transaction
FEMA 120- Outbound
Investment
Section 6(3)
Direct Investment by Residents in Joint Venture
(JV) / Wholly Owned Subsidiary (WOS) Abroad
FEMA 20- Inbound Investment Foreign Investment in India
FEMA 22- Establishment in
India of Branch or Office or
Other place of business
Section 6(6)
Establishment of Branch Office (BO)/ Liaison Office
(LO)/ Project Office (PO) or any other place of
business in India by foreign entities
Current Account Transaction
FEMA 23- Export of Goods and
Services Section 7
Export of Goods and Services
Import of Goods and Services Section 2(j) Import of Goods and Services

10. Ways of Foreign Investment
Foreign
Investment
Foreign Direct
Investment
Automatic
Route
Person
Resident
Outside India
Govt. Route
Foreign
Portfolio
Investment
FIIs
NRIs, PIOs
Loan from
overseas
Automatic
Approval
Debentures
and Pref
Shares
Compulsory
convertible
Others
Trade Credit
up to 3 years

11. Debt vs Equity
Debt Equity
Assured Return Capital repatriation Tax Benefit
Sources of Payment Security
Return on
Investment

12. External Commercial Borrowing

13. 39 40 43 48 51 52 53 52 54 55 57
62 62 71
88
120 140 149 180 181 173
202
44 42
48
52
59
71
104
115 127 117
126
46 43
52
65
78
97
92
82 80 87
102
224 224
261
306
361
410
446
471 482 470
530
-
100
200
300
400
500
600
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
USDBn
Multilateral Bilateral IMF
Trade Credit ECB NRI Deposits
Rupee Debt Short Term Debt Total External Debt
Impact of ECB on India’s External Debt

14. Cost of
domestic
borrowing
Cost of
ECB
Global
Financial
Market
Indian
Financial
Market
Foreign
Exchange
Exposure-NIL
Foreign
Exchange
Exposure not
hedged
End Use Restrictions
ECB
Funds
ECB
Funds
ECB vs domestic borrowing

15. • RBI on December 17, 2018, issued Foreign Exchange
Management (Borrowing and Lending) Regulations,
2018 (‘New Regulations’) in an attempt to consolidate
and streamline the regulatory provisions dealing with
borrowing and lending in foreign exchange as well as
Indian Rupees (INR).
• This was in supersession of two existing regulations,
Foreign Exchange Management (Borrowing and Lending
in Foreign Exchange) Regulations, 2000 and Foreign
Exchange Management (Borrowing and Lending in
Rupees) Regulations, 2000.
• RBI revised the erstwhile ECB Framework to align the
New Regulations by way of revised ECB framework on
January 16, 2019.
• The revised framework are in line with the ease of doing
business for and rationalizes the provisions regarding
MAMP, eligible borrowers and recognized lenders
among other changes.
New ECB Framework

16. Forms of ECB
Loans
including
bank
loans
Floating/
fixed rate
notes/
bonds/
debenture
s
Trade
credits
beyond 3
years
FCCBsFCEBs
Financial
Lease
Rupee
denominat
ed bonds

17. Key Takeaways:
 Common Eligibility criteria
and requirements for both FCY
and INR denominated ECB,
apart from the currency
exchange rate, hedging
requirement and forms of ECB,
the other eligibility criteria and
requirements.
Track I. Medium
Term FCY ECB
Track II. Long
Term FCY ECB
Track III. INR
ECB
FCY denominated ECB (Track I +
Track II)
INR denominated ECB (Track III) (INR
denominated ECB + INR Bonds)
Erstwhile ECB Framework Revised ECB Framework
Merging of categories
INR Bonds
(Masala Bonds)

18. Erstwhile ECB Framework Revised ECB Framework
TRACK I: Companies in
manufacturing, infrastructure and
software development, shipping ,
airlines Companies, SIDBI, EXIM
Bank, Port Trusts, Units in SEZ etc.
All entities eligible to receive FDI.
Further, the following entities are also
eligible to raise ECB:
• Port Trusts
• Units in SEZ
• SIDBI
• EXIM Bank
• Registered entities engaged in
micro-finance activities
• Section 8 companies
•Societies / trusts/ cooperatives
TRACK II: All entities listed under
Track I, Real Estate Investment Trusts
(REIT) and Infrastructure Investment
Trusts (INVIT) coming under the
regulatory framework of the SEBI.
TRACK III: All entities listed under
Track II, NBFCs, NBFC-micro finance
activities, Companies engaged in
Miscellaneous services
Key Takeaways:
Eligible borrowers include all
entities eligible to receive FDI.
LLPs can now avail ECB.
Service sector can now avail
FCY ECB.
NBFCs have an opportunity
to receive foreign funds (FCY
ECB).
Specific permission for REIT
and INVIT have been
removed.
Eligible Borrowers- who can borrow?

19. Erstwhile ECB Framework Revised ECB Framework
TRACK I: International banks,
International Capital markets,
Multilateral Financial Institutions,
Export Credit Agencies,
Suppliers of equipment, Foreign
equity holders, Overseas Long
Term investors, Overseas
branches / subsidiaries of Indian
banks
•The lender should be resident of
FAFT or IOCSO Country.
•Multilateral and Regional
Financial Institutions where India
is a member country will also be
considered as recognized lenders.
• Individuals as lenders can only
be permitted if they are foreign
equity holders or for subscription
to bonds/debentures listed
abroad.
•Foreign branches / subsidiaries
of Indian banks are permitted as
recognized lenders only for FCY
ECB.
TRACK II: All entities listed under
Track I except overseas branches
/ subsidiaries of Indian banks.
TRACK III: All entities listed under
Track I except overseas branches
/ subsidiaries of Indian banks.
Key Takeaways:
 Major push for lenders, who
wanted to lend in foreign currency.
PE and VCF can lend monies
without mandatorily having equity
participation.
Foreign parent companies can lend
to its Indian subsidiaries through
RDBs- Restriction on investment by
related parties removed.
Angel investors, foreigners or PIOs
investing in individual capacities in
Indian ventures, holding 25% of the
equity- can lend to these companies,
instead of capitalizing through an
additional equity.
Recognised Lenders- who can lend?

20. Erstwhile ECB framework Revised ECB framework
Track I
Up to USD 50 million / or its
equivalent –3 years
Beyond USD 50 million / or its
equivalent –5 years
NBFC IFC / NBFC-AFC, Holding
Company, CIC –5 years
FCCB / FCEB –5 years
• MAMP will be 3 years.
• 1 year upto USD 50 million per
FY for Manufacturing Sector.
• 5 years if the ECB is raised for
working capital, general corporate
purposes or repayment of Rupee
loans from Foreign Equity Holder.
Track II
10 years irrespective of the
amount
Track III
Same as Track I
Key Takeaways:
 Standardised for all forms of
ECB- irrespective of the amount
borrowed
REITs and INVITs borrowing
under Track II has been
considerably benefitted. Long
MAMP under Track II was
deterrent to avail ECB, now
MAMP reduced from 10 to 3
years.
MAMP for RDB is also relaxed-
3years (irrespective of the
amount).
Minimum Average Maturity Period

21. Real estate activities
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
On-lending to
entities for the
above activities
Key Takeaways:
 Restrictions not applicable to
Track II and RDB earlier are
now applicable- Now REITs
and INVITs cannot borrow for
the working capital purpose
and general corporate
purpose, except from an equity
holder- it was one of the pre-
dominant purposes for which
ECB through RDB was raised.
End Use Restriction- ECB cannot be used for...

22. All in Cost of ECB
FCY denominated ECB
• 450 basis points per annum
over 6-month LIBOR rate of
different currencies or any
other 6-month interbank
interest rate applicable to
the currency of borrowing.
INR denominated ECB
• Maximum spread will be
450 basis points per annum
over the prevailing yield of
the Government of India
securities of corresponding
maturity.

23. • Companies
in software
developme
nt sector
• For other
entities
• Entities
engaged in
micro finance
activities
• Infrastructure
and
manufacturing
Companies,
NBFCs Up to USD
750 million
or
equivalent
Up to USD
100 million
or
equivalent
Up to USD
200 million
or
equivalent
Up to USD
500 million
or
equivalent
All eligible borrowers can
raise ECB upto USD 750
million or equivalent per
financial year.
 For startups, the RBI
continues with its
conservative approach by
providing a limit of ECB for
only USD 3 million or its
equivalent per financial year.
Automatic
Route
Erstwhile ECB framework Revised ECB framework
Individual Limits for borrowing

24. Automatic
Route
If ECB is raised from
direct equity holder, the
individual ECB limits will
also subject to ECB
liability: equity ratio
requirement.
The ECB liability of the
borrower (including all
outstanding ECBs and the
proposed one) towards
the foreign equity holder
should not be more than 7
times of the equity
contributed by the latter.
Ratio is not applicable if
total of all ECBs raised by
an entity is up to USD 5
million or equivalent.
The 7:1 ratio is applicable for
FCY ECB only.
Ratio will not be applicable if
outstanding amount of all ECBs,
including proposed one, is up to
USD 5 million or equivalent.
Erstwhile ECB framework Revised ECB framework
ECB Liability- Equity Ratio

25. Delay in reporting of drawdown of ECB proceeds before
obtaining LRN or delay in submission of Form ECB 2
returns, can be regularized by payment of LSF.
S.No Type of Return/Form Period of delay Applicable LSF
1 Form ECB 2 Up to 30 calendar days from due
date of submission
INR 5,000
2 Form ECB 2/Form ECB Up to three years from due date of
submission/date of drawdown
INR 50,000 per year
3 Form ECB 2/Form ECB Beyond three years from due date
of submission/date of drawdown
INR 100,000 per year
Late Submission Fee-Penalty provision

26.  Hedging Provision- Companies are required to mandatorily hedge 70 per cent of their ECB
exposure in case average maturity of ECB is less than 5 years- earlier 100 per cent hedging
was mandatory at all times.
Security for raising ECB- AD Banks can allow creation of charge on immovable assets,
movable assets, financial securities and issue of corporate and/ or personal guarantees in
favour of overseas lender / security trustee, to secure the ECB to be raised / raised by the
borrower.
Parking of ECB proceeds- ECB proceeds are permitted to be parked abroad as well as
domestically depending on its foreign currency expenditure/ rupee expenditure.
Hybrid Instruments- Optionally convertible debentures, presently covered under ECB, would
be governed by specific hybrid instruments’ Regulations when notified by the Government of
India.
Refinancing of existing ECB- Existing ECB can be refinanced by raising fresh ECB-
provided the outstanding maturity of original ECB is not reduced and all-in-cost of fresh ECB is
lower than all-in-cost of existing ECB.
Other important areas

27. Trade Credits- Importers can raise TC upto USD 50 million equivalent per import transaction.
The period of trade credit for import of non-capital goods is max. 1 year and for that of capital
goods is max. 3 years.
SEZ units can avail TC for imports from outside India, within SEZ and purchase from different
SEZ.
TC can be availed from suppliers, banks, financial institutions and foreign equity holder as well.
ECB for Startups- Entities recognised as Startup by the Government can raise ECB of USD
3 million or equivalent per financial year either in INR or any convertible foreign currency or a
combination of both, with MAMP of 3 years. The end use should be for business purpose only.
ECB facility for Resolution Applicants under CIRP*- ECB can be raised from the
recognised lenders, except the branches/ overseas subsidiaries of Indian banks, for repayment
of Rupee term loans of the target company under the approval route.
*Vide A.P. (DIR Series) Circular No. 18 dated February 07, 2019.
Other important areas (contd.)

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