STRUCTURE

OF
EXTERNAL COMMERCIAL
BORROWING
 INDEX

EXTERNAL COMMERCIAL BORROWINGS...............................................................................................................2

ELIGIBLE ENTITIES.........................................................................................................................................................3

AMOUNT AND MATURITY ..........................................................................................................................................4

ALL – IN – ONE COST CEILING ..................................................................................................................................5

END – USE .........................................................................................................................................................................6

GUARANTEES...................................................................................................................................................................7

SECURITY..........................................................................................................................................................................8

PARKING OF ECB PROCEEDS ...................................................................................................................................10

PREPAYMENT ................................................................................................................................................................11

BUY – BACK OF FCCB..................................................................................................................................................11

REFINANCING................................................................................................................................................................12

PROCEDURE ...................................................................................................................................................................13

REPORTING COMPLIANCES......................................................................................................................................14

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EXTERNAL COMMERCIAL BORROWINGS

External Commercial
Borrowings

ECB refers to commercial loans in

the form of bank loans, buyers’
credit and suppliers’ credit
securitized instruments, availed
from non-resident lender with
minimum average maturity of 3

It can be accessed
through two routes

Automatic Route – Approval Route – where

where no approval of approval of Reserve
Reserve Bank of India is Bank of India is required

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 ELIGIBLE ENTITIES

Eligible Borrower

Under Automatic Route Under Approval Route

Corporates registered under Banks, Financial Institutions (FIs),

the Companies Act,1956 are Housing Finance Companies (HFCs)
eligible to raise ECB and Non-Banking Financial
Companies (NBFCs), SEZ Developers
are eligible to raise ECB

Note: Individuals, Trusts and Non-Profit making organization are not eligible to raise
External Commercial Borrowings.

Eligible Lender

Multilateral Financial Reputable, regional Official Export credit International Banks

Institution such as IFC, financial institutions agencies and Capital markets
ADB, CDC etc.

Foreign Collaborator Foreign Equity Holders Suppliers of equipment

Note: Foreign Equity holder to be eligible as “recognized lender” under automatic route would
require the minimum holding of paid up equity in the borrower company as set out below:

1. For ECB upto USD 5 million – Minimum paid up equity of 25% held directly by the lender
2. For ECB more than USD 5 million - Minimum paid up equity of 25% held directly by the
lender and debt – equity ratio not exceeding 4:1.

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 AMOUNT AND MATURITY

Amount & Maturity

Automatic Route Approval Route

Corporate Corporate

Can raise additional

$ 250 million *
Other than Service Sector
Service Sector

Average maturity of
more than 10 years
Up to $ 500 Up to $100
Million Million

Maturity

ECB up to $ 20 ECB above $ 20 million

million or up to $ 500 million

Minimum average Minimum average

maturity of 3 years maturity of 5 years

* This is over and above the existing limit of Rs. 500 million under automatic route

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ALL – IN – ONE COST CEILING

All – in – one cost ceiling

It means rate of interest, other fees

and expenses in foreign currency
except commitment fee, pre – payment
fee and fees payable in Indian rupees
*

AVERAGE MATURITY ALL – IN – COST

PERIOD CEILING OVER 6
MONTHS LIBOR * *
3 years and up to 300 basis points
5 years
More than 5 years 500 basis points

* Payment of withholding tax in Indian Rupees is excluded for calculating the all-in-cost.
** For the respective currency of borrowing or applicable benchmark

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 END – USE

Permitted End - use

ECB can be raised only for

investment in

Import New Modernizatio Overseas Government For Premature

of project n/Expansion direct disinvestment obtaining buyback of
capital of existing investment programme of license/ FCCBs *
goods production in JV/ WOS PSU shares permit for
units 3G
spectrum

Industrial Sector Service Infrastructure

including SME Sector Sector

Hotel, Hospital
& Software
Sea port, Power, Urban Mining,
airport & Railway Infrastructure, refining &
industrial & Road telecom exploration
parks

End – Use not permitted

On lending, Investment Real Acquiring a General Repayment

working in capital estate co. in India corporate of existing
capital market sector by a purpose Rupee
requirements corporate loans

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* This facility is available upto 31.12.2009 subject to compliance with the terms and conditions.

GUARANTEES

Guarantee

Issuance of Standby Letter of

guarantee letter of undertaking
credit or comfort

By

Banks Financial Non – Banking

Institutions Financial
Companies

For raising ECB is

not permitted

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SECURITY

Security for ECB

The choice of security to be provided

to the lender is left to the borrower. It
may be in the form of:

Charge on immovable Corporate or personal

assets/ financial guarantees in favour of
security the lender

AD category – I banks has been

delegated power to convey ‘no
objection certificate’ to secure the ECB
to be raised by the borrower

Before providing NOC, he must ensure

that

ECB strictly in There must be The loan The borrower has

compliance a security agreement must obtained loan
with ECB clause in the be signed by registration number
guidelines loan agreement both the parties from the RBI

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 A

On compliance with the above

condition, AD category – I bank may
convey their no objections:

For creation of charge on For issuance of corporate or

immovable assets subject personal guarantee subject
to the following conditions to the following conditions

It shall be The period of In event of A Specific request The period

granted to such charge enforcement of Resolution from individual should be co –
a resident has to be co- charge has been to issue terminus with
ECB terminus with immovable passed by personal maturity of
borrower the maturity property will the Board guarantee underlying of
of underlying have to be sold of indicating ECB
ECB to resident of directors detail of the
India of the ECB
Company

For pledge of
shares subject
to the following
condition

The period of In case of A certificate from the

such pledge invocation of statutory auditors of
shall be co- pledge, transfer the company has been
terminus with shall be according obtained that ECB
the maturity of to FDI policy proceeds have been/
the underlying will be utilized for the
ECB permitted end-use

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PARKING OF ECB PROCEEDS

Parking of ECB Proceeds

ECB proceeds may be parked overseas until actual requirement in

India or be remitted to India pending utilization for permissible
end-uses.

ECB proceeds parked overseas can be invested in the following

liquid assets

Deposit or certificate Deposit with Treasury bill or other

of deposit or other overseas instrument with one
product offered by branch/subsidiaries year maturity
bankers rated not less of Indian banks
than AA (-) by S&P abroad

The fund should be invested in a

way that the investment can be
liquidated as and when funds are
required by the borrower in India

Note: The funds should be invested in such a way that the investments can be liquidated as and
when funds are required by the borrower in India.

The funds remitted to Indian to be utilized for permissible end – uses can be invested in Fixed
Deposits till the time of actual use.

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PREPAYMENT

Prepayment

Automatic Route Approval Route

Pre-payment of ECB proceeds of

ECB up to $500 above $500
million may be million may be
allowed without allowed with the
the prior approval of RBI
approval of RBI

BUY – BACK OF FCCB

Buy – back of FCCB

Automatic Route

Designated AD category – I banks may allow

Indian company’s to pre-maturely buy back FCCB,
subject to the following terms & conditions:

Min. discount The funds used for the Where the fresh ECB is co-
of 15% on the buyback shall be out of terminus with the outstanding
book value existing foreign currency maturity of the original FCCB
for funds held either in India or and is for less than 3 years, the
redemption abroad or out of fresh ECB all-in-one cost ceiling should
raised in conformity with the not exceed 6 months libor plus
current ECB norms 20 bps, as applicable to short
term borrowings

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 Buy – back of FCCB

Approval Route

RBI allowed for buy – back of FCCB up to $100

million subject to the following

Min. discount of Min. discount of Min. discount of The funds used for the
25% on the 35% on the 50% on the buy back shall not be
book value for book value for book value for out of internal
redemption up redemption redemption of accruals to be
to $50 million value over $50 over $75 evidenced by statutory
million and up million and up auditors and
to $75 million to $100 million designated AD
category – I Bank’s
certificate

The entire procedure of buy back should be

completed by December 31 of the year

REFINANCING

Refinancing

The existing ECB may be refinanced by raising a

fresh ECB, subject to the following:

It shall be raised at The outstanding maturity of

a lower all-in-cost the original ECB is maintained

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PROCEDURE

Procedure

Automatic Route Approval Route

Borrower may enter into Submit an application in

loan agreement complying form ECB through
with ECB guidelines with designated AD bank
recognised lender without
the approval of RBI

It is submitted to the
Chief General Manager –
A detailed report has to Incharge, Foreign
be submitted in the Exchange Department,
regional office of RBI RBI, Central Office, ECB
division, Mumbai -
400001
Along with the
The ECB proceeds should following
be utilized in conformity Documents
with ECB guidelines

A copy of offer letter from A copy of the import

the overseas lender contract, Performa/
specifying the complete commercial invoice/ bill
terms and conditions of of lending
proposed ECB

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REPORTING COMPLIANCES

Reporting Compliances

Reporting of loan Reporting of

agreement actual transaction

In Form No. 83 In Form ECB - 2

Designated AD to the
Director, Balance of
payment, stats
Within 7 days to division, department to Within 7 days
from the date of of statistics and from the close of
loan agreement information the month
management, RBI,
Bandra- Kurla
Complex, Mumbai -
The form must be 400051
certified by CS or
CA to the
designated AD
bank

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