Circular. No. 04/2007-08-RB, DT. 07/08/2007 has been issued to insulate the economy from excessive capital inflow.

Key features of the instruction contained in this circular are:

(i) ECB more than USD 20 million - prior approval of RBI required

(ii) ECB more than USD 20 million shall not be used for domestic purpose

(iii) These restrictions are applicable per financial year.

(iv) ECB upto USD 20 million per borrowing company per financial year would be allowed to remit in India only after prior approval for rupree expenditure.

(v) All other aspects of ECB policy remain unchanged.

(vi)  These conditions will not apply to borrowers who have already entered into loan agreement and obtained loan registration numbers from the Reserve Bank.

ECB approval requirement limits large external borrowings and forbids their domestic use, with prior approval needed for rupee expenditures. ECB policy mandates prior approval of the Reserve Bank for borrowings above the prescribed threshold and bars use of those borrowings for domestic purposes on a per-financial-year basis; smaller borrowings per company per year may be remitted into India only after prior approval for rupee expenditure. Other ECB rules remain unchanged, and borrowers with existing loan agreements and Reserve Bank loan registration numbers are exempt from these conditions.