TaxTMI 
TaxTMI 
Master Circular on External Commercial Borrowings and Trade Credits
X X X X Extracts X X X X
X X X X Extracts X X X X
....X ii) Recognised Lenders iv) PART I EXTERNAL COMMERCIAL BORROWINGS (ECB)..... I.(A) AUTOMATIC ROUTE i) Eligible Borrowers. Amount and Maturity. All-in-cost ceilings End-use vi) End Uses not permitted vii) Guarantees.. viii) Security..... ix) Parking of ECB proceeds.. x) Prepayment ..... xi) xii) Debt Servicing xiii) I.(B) Refinancing of an existing ECB Procedure.. APPROVAL ROUTE i) Eligible Borrowers.. ii) Recognised Lenders iii) Amount and Maturity. iv) All-in-cost ceilings. End-use vi) End-uses not permitted. vii) Guarantee... viii) Security....... ix) Parking of ECB proceeds.... x) Prepayment ...... xi) Refinancing of an existing ECB xii) Debt Servicing xiii) Procedure xiv) Foreign Currency Exchangeable Bonds. 3 4 33445 4 5 6 7 7 8 8 9 11 11 12 12 12 12 12 14 14 15 15 16 17 17 18 18 18 19 19 19 .21 xv) Empowered Committee II. REPORTING ARANGEMENTS AND DISSEMINATION OF INFORMATION 22 i) Reporting Arrangements. ii) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to debt instruments. The ECB policy is applicable to FCCBs. The issue of FCCBs is also required to adhere to the provisions of Notification FEMA No. 120/RB-2004 dated July 7, 2004, as amended from time to time. (c) Preference shares (i.e. non-convertible, optionally convertible or partially convertible) for issue of which, funds have been received on or after May 1, 2007 would be considered as debt and should conform to policy. Accordingly, all the norms applicable for ECBs, viz. eligible borrowers, recognised lenders, amount and maturity, end use stipulations, etc. shall apply. Since these instruments would be denominated in Rupees, the rupee interest rate will be based on the swap equivalent of LIBOR plus the spread as permissible for ECBS of corresponding maturity. (d) Foreign Currency Exchangeable Bond (FCEB) means a bond expressed in foreign currency, the principal and interest in respect of which is payable in foreign currency, issued by an Issuing Company and subscribed to by a person who is a resident outside India, in foreign currency and exchangeable into equity 3 4 of 50 share of another company, to be called the Offered....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... management of the borrowing entity from the designated AD bank. ii) Recognised Lenders Borrowers can raise ECB from internationally recognized sources such as (i) international banks, (ii) international capital markets, (iii) multilateral financial institutions (such as IFC, ADB, CDC, etc.) / regional financial institutions and Government owned development financial institutions, (iv) export credit agencies, (v) suppliers of equipments, (vi) foreign collaborators and (vii) foreign equity holders (other than erstwhile Overseas Corporate Bodies (OCBs)). A "foreign equity holder" to be eligible as “recognized lender" under the automatic route would require minimum holding of paid-up equity in the borrower company as set out below: (i) (ii) For ECB up to USD 5 million - minimum paid-up equity of 25 per cent held directly by the lender, For ECB more than USD 5 million - minimum paid-up equity of 25 per cent held directly by the lender and debt-equity ratio not exceeding 4:1 (i.e. the proposed ECB not exceeding four times the direct foreign equity holding) Overseas organizations and individuals complying with following sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... f) ECB up to USD 20 million or equivalent can have call/put option provided the minimum average maturity of three years is complied with before exercising call/put option. CO 6 7 of 50 iv) All-in-cost ceilings All-in-cost includes rate of interest, other fees and expenses in foreign currency except commitment fee, pre-payment fee, and fees payable in Indian Rupees. The payment of withholding tax in Indian Rupees is excluded for calculating the all-in-cost. The all-in-cost ceilings for ECB are reviewed from time to time. The following ceilings are valid until reviewed: Average Maturity Period Three years and up to five years More than five years All-in-cost Ceilings over 6 month LIBOR* 300 basis points 500 basis points * for the respective currency of borrowing or applicable benchmark v) End-use a) b) c) ECB can be raised for investment [such as import of capital goods (as classified by DGFT in the Foreign Trade Policy), new projects, modernization/expansion of existing production units] in real sector industrial sector including small and medium enterprises (SME), infrastructure sector an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ertaking or letter of comfort by banks, Financial Institutions and Non-Banking Financial Companies (NBFCs) from India relating to ECB is not permitted. 8 9 of 50 viii) Security The choice of security to be provided to the lender/supplier is left to the borrower. However, creation of charge over immoveable assets and financial securities, such as shares, in favour of the overseas lender is subject to Regulation 8 of Notification No. FEMA 21/RB-2000 dated May 3, 2000 and Regulation 3 of Notification No. FEMA 20/RB-2000 dated May 3, 2000, respectively, as amended from time to time. AD Category - I banks have been delegated powers to convey 'no objection' under the Foreign Exchange Management Act (FEMA), 1999 for creation of charge on immovable assets, financial securities and issue of corporate or personal guarantees in favour of overseas lender / security trustee, to secure the ECB to be raised by the borrower. Before according 'no objection' under FEMA, 1999, AD Category - I banks should ensure and satisfy themselves that (i) the underlying ECB is strictly in compliance with the extant ECB guidelines, (ii) there exists a security....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... execute such guarantees on behalf of the company or in individual capacity. Specific requests from individuals to issue personal guarantee indicating details of the ECB. (ii) (iii) Ensuring that the period of such corporate or personal guarantee is co-terminus with the maturity of the underlying ECB. AD Category - I banks may invariably specify that the 'no objection' is issued from the foreign exchange angle under the provisions of FEMA, 1999 and should 10 11 of 50 not be construed as an approval by any other statutory authority or Government under any other law/ regulation. If further approval or permission is required from any other regulatory / statutory authority or Government under the relevant laws / regulations, the applicant should take the approval of the authority concerned before undertaking the transaction. Further, the 'no objection' should not be construed as regularizing or validating any irregularities, contravention or other lapses, if any, under the provisions of FEMA or any other laws or regulations. ix) Parking of ECB proceeds Borrowers are permitted to either keep ECB proceeds abroad or to remit thes....
X X X X Extracts X X X X
X X X X Extracts X X X X
....estructuring package as approved by the Government are also permitted to the extent of their investment in the package and assessment by the Reserve Bank based on prudential norms. Any ECB availed for this purpose so far will be deducted from their entitlement. 12 13 of 50 c) d) e) f) g) h) ECB with minimum average maturity of 5 years by Non-Banking Financial Companies (NBFCs) from multilateral financial institutions, reputable regional financial institutions, official export credit agencies and international banks to finance import of infrastructure equipment for leasing to infrastructure projects. Infrastructure Finance Companies (IFCs) i.e. Non-Banking Financial Companies (NBFCs), categorized as IFCS, by the Reserve Bank, are permitted to avail of ECBs, including the outstanding ECBs, beyond 50 per cent of their owned funds, for on-lending to the infrastructure sector as defined under the ECB policy, subject to their complying with the following conditions: i) compliance with the norms prescribed in the DNBS Circular DNBS.PD.CCNo.168 / 03.02.089 / 2009-10 dated February 12, 2010 ii) hedging of the currency r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....). From 'foreign equity holder' where the minimum paid-up equity held directly by the foreign equity lender is 25 per cent but ECBs: equity ratio exceeds 4:1 (i.e. the proposed ECB exceeds four times the direct foreign equity holding). iii) Amount and Maturity Corporates can avail of ECB of an additional amount of USD 250 million with average maturity of more than 10 years under the approval route, over and above the existing limit of USD 500 million under the automatic route, during a financial year. Other ECB criteria, such as end-use, recognized lender, etc., need to be complied with. Prepayment and call/put options, however, would not be permissible for such ECB up to a period of 10 years. 14 15 of 50 iv) All-in-cost ceilings All-in-cost includes rate of interest, other fees and expenses in foreign currency except commitment fee, pre-payment fee, and fees payable in Indian Rupees. The payment of withholding tax in Indian Rupees is excluded for calculating the all-in-cost. The all-in-cost ceilings for ECB are reviewed from time to time. The following ceilings are valid until reviewed: Average Maturity Period ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by Ministry of Commerce and Industry, DIPP, SIA (FC Division), Press Note 3 (2002 Series) dated January 4, 2002. Integrated township includes housing, commercial premises, hotels, resorts, city and regional level urban infrastructure facilities, such as roads and bridges, mass rapid transit systems and manufacture of building materials. Development of land and providing allied infrastructure forms an integrated part of township's development. The minimum area to be developed should be 100 acres for which norms and standards are to be followed as per local bye-laws/rules. In the absence of such bye-laws/rules, a minimum of two thousand dwelling units for about ten thousand population will need to be developed. This facility is available up to December 31, 2010. vi) End-uses not permitted (a) For on-lending or investment in capital market or acquiring a company (or a part thereof) in India by a corporate except Infrastructure Finance 16 17 of 50 (b) (c) Companies (IFCs), banks and financial institutions eligible under paragraph I (B) (i) (a), (b) and (c). For real estate. However, the term real estate excludes development....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he borrower in India. ECB funds may also be repatriated to India for credit to the borrowers' Rupee accounts with AD Category I banks in India pending utilization for permissible end-uses. ☑) (a) (b) Prepayment Prepayment of ECB up to USD 500 million may be allowed by the AD bank without prior approval of the Reserve Bank subject to compliance with the stipulated minimum average maturity period as applicable to the loan. Pre-payment of ECB for amounts exceeding USD 500 million would be considered by the Reserve Bank under the Approval Route. xi) Refinancing of an existing ECB Existing ECB may be refinanced by raising a fresh ECB subject to the condition that the fresh ECB is raised at a lower all-in-cost and the outstanding maturity of the original ECB is maintained. 18 19 of 50 xii) Debt Servicing The designated AD bank has general permission to make remittances of installments of principal, interest and other charges in conformity with the ECB guidelines issued by Government / Reserve Bank from time to time. xiii) Procedure Applicants are required to submit an application in form ECB through de....
X X X X Extracts X X X X
X X X X Extracts X X X X
....olly Owned Subsidiaries. The proceeds of FCEB may be invested by the issuing company in the promoter group companies. Promoter Group Companies: Promoter group companies receiving investments out of the FCEB proceeds may utilize the amount in accordance with end-uses prescribed under the ECB policy. End-uses not permitted: The promoter group company receiving such investments will not be permitted to utilise the proceeds for investments in the capital market or in real estate in India. All-in-cost The rate of interest payable on FCEB and the issue expenses incurred in foreign currency shall be within the all-in-cost ceiling as specified by Reserve Bank under the ECB policy. Pricing of FCEB: At the time of issuance of FCEB the exchange price of the offered listed equity shares shall not be less than the higher of the following two: 20 21 of 50 (i) (ii) The average of the weekly high and low of the closing prices of the shares of the offered company quoted on the stock exchange during the six months preceding the relevant date; and The average of the weekly high and low of the closing prices of the shares of the offered....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ank. Borrowers are required to submit ECB-2 Return certified by the designated AD bank on monthly basis so as to reach DSIM, Reserve Bank within seven working days from the close of month to which it relates. [Note: All previous returns relating to ECB viz. ECB 3 - ECB 6 have been discontinued with effect from January 31, 2004]. ii) Dissemination of Information For providing greater transparency, information with regard to the name of the borrower, amount, purpose and maturity of ECB under both Automatic and Approval routes are put on the Reserve Bank's website, on a monthly basis, with a lag of one month to which it relates. III. STRUCTURED OBLIGATIONS Borrowing and lending of Indian Rupees between two residents does not attract any provisions of the Foreign Exchange Management Act, 1999. In cases where 22 23 of 50 a Rupee loan is granted against the guarantee provided by a non-resident, there is no transaction involving foreign exchange until the guarantee is invoked and the non-resident guarantor is required to meet the liability under the guarantee. The non-resident guarantor may discharge the liability by i) paymen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....olved; on invocation of the credit enhancement, if the guarantor meets the liability and if the same is permissible to be repaid in foreign currency to the eligible non-resident entity, the all-in-cost ceilings, as applicable to the relevant maturity period of the Trade Credit / ECBs, is applicable to the novated loan. The all-in-cost ceilings, depending on the average maturity period, are applicable as follows: Average maturity period of the All-in-cost ceilings over 6 month loan on invocation LIBOR* Up to 3 years 200 basis points Three years and up to five years 300 basis points 500 basis points vi) More than five years *for the respective currency of borrowing or applicable benchmark In case of default and if the loan is serviced in Indian Rupees, the applicable rate of interest would be the coupon of the bonds or 250 bps over the prevailing secondary market yield of 5 years Government of India security, as on the date of novation, whichever is higher; vii) IFCS proposing to avail of the credit enhancement facility should comply with the eligibility criteria and prudential norms laid down in the circular DNB....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly converted to equity" should be indicated on top of the ECB-2 form. In subsequent months, the outstanding portion of ECB should be reported in ECB-2 form to DSIM. VI. CRYSTALLISATION OF ECB AD banks desiring to crystallize their foreign exchange liability arising out of guarantees provided for ECB raised by corporates in India into Rupees, may make an application to the Chief General Manager-in-Charge, Foreign Exchange Department, External Commercial Borrowings Division, Reserve Bank of India, Central Office, Mumbai 400 001, giving full details viz., name of the borrower, amount raised, maturity, circumstances leading to invocation of guarantee /letter of comfort, date of default, its impact on the liabilities of the overseas branch of the AD bank concerned and other relevant factors. VII. ECB UNDER THE ERSTWHILE USD 5 MILLION SCHEME Designated AD banks are permitted to approve elongation of repayment period for loans raised under the erstwhile USD 5 Million Scheme, provided there is a consent letter from the overseas lender for such reschedulement without any additional cost. Such approval with existing and revised repayme....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Credits' (TC) refer to credits extended for imports directly by the overseas supplier, bank and financial institution for maturity of less than three years. Depending on the source of finance, such trade credits include suppliers' credit or buyers' credit. Suppliers' credit relates to credit for imports into India extended by the overseas supplier, while buyers' credit refers to loans for payment of imports into India arranged by the importer from a bank or financial institution outside India for maturity of less than three years. It may be noted that buyers' credit and suppliers' credit for three years and above come under the category of External Commercial Borrowings (ECB) which are governed by ECB guidelines. a) Amount and Maturity AD banks are permitted to approve trade credits for imports into India up to USD 20 million per import transaction for imports permissible under the current Foreign Trade Policy of the DGFT with a maturity period up to one year (from the date of shipment). For import of capital goods as classified by DGFT, AD banks may approve trade credits up to USD 20 million per import transaction with a maturity perio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h floor, Fort, Mumbai 400 001 (and in MS-Excel file through email to [email protected]) from December 2004 onwards so as to reach the Department not later than 10th of the following month. - 29 29 30 of 50 Form ECB Annex-l Application for raising External Commercial Borrowings (ECB) under Approval Route Instructions The complete application should be submitted by the applicant through the designated authorised dealer to the Chief General Manager-In-Charge, Foreign Exchange Department, Central Office, ECB Division, Reserve Bank of India, Mumbai 400 001. Documentation: Following documents, (as relevant) certified by authorised dealer, should be forwarded with the application: (i) A copy of offer letter from the overseas lender/supplier furnishing complete details of the terms and conditions of proposed ECB. (ii) A copy of the import contract, proforma/commercial invoice/bill of lading. PART-A-GENERAL INFORMATION ABOUT THE BORROWER 1. Name of the applicant (BLOCK LETTERS) Address 2. Status of the applicant i) Private Sector ii) Public Sector PART-B-INFORMATION ABOUT THE PROPOSED ECB 1. D....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e and belief and (ii) the ECB to be raised will be utilised for permitted purposes. Place Name: Date Stamp Designation Phone No. (Signature of Authorised Official of the applicant) Fax E-mail By the authorised dealer - 2. We hereby certify that (i) the applicant is our customer and (ii) we have scrutinised the application and the original letter of offer from the lender/supplier and documents relating to proposed borrowing and found the same to be in order. Place Name Date Stamp Name of the Bank/branch A.D.Code (Signature of Authorised Official) 32 32 33 of 50 Form 83 Annex II Reporting of loan agreement details under Foreign Exchange Management Act, 1999 (for all categories and any amount of ECB) Instructions: 1. The borrower is required to submit completed Form 83, in duplicate, certified by the Company Secretary (CS) or Chartered Accountant (CA) to the designated Authorised Dealer (AD). One copy is to be forwarded by the designated AD to the Director, Balance of Payments Statistics Division, Department of Statistical Analysis and Computer Services (DESACS), Reserve Bank of India....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y of the borrower (%) Specify Authorised Dealer's Name, and bank code Bank Code Part I: Multi-lateral Financial Institution Foreign Government (Bilateral Agency) Export Credit Agency Indian Commercial Bank branch abroad Other Commercial Bank Supplier of Equipment Leasing Company Foreign Collaborator / Foreign Equity Holder (Please provide details of foreign equity holding in the borrower company below) International Capital Market Other (Specify) (b) Amount of paid-up equity Lender's Reference / IBRD No. (if it is a IBRD loan) Part II: Fax: E-mail ID: Part B: Other Details ECB approval Scheme (Tick in appropriate Box) Automatic Route Approval Route Approved by Govt. Maturity Details Effective Date of the Loan Last Date of Disbursement Maturity Date (Last payment date) Grace Period (Year/Month) 34 YYMM 35 of 50 Economic Sector /Industry Code (See Box 3) Purpose of Borrowings Code (See box2) If Import, specify the Country of Import (if more than one country, attach details): Type of ECB Buyers' Credit Line of Credit Commercial loan / Syndicated Loan (att....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... PART D: ECB availed in the current & previous three financial years-(not applicable for the first time borrower) Year Registration No. Currency Loan Amount Amount disbursed Amount outstanding* * net of repayments, if any, on the date of application. We hereby certify that the particulars given above are true and correct to the best of our knowledge and belief. No material information has been withheld and / or misrepresented. Place: Date: Stamp (Signature of the Authorised Official of the Company) Name: Designation: (Signature of Company Secretary / Chartered Accountant) Stamp Name : [For use of Authorised Dealer] We certify that the borrower is our customer and the particulars given in this form are true and correct to the best of our knowledge and belief. Furthermore, the ECB is in compliance with ECB guidelines. Place: Date: Stamp (Signature of Authorised Official) Name : Designation: Designation: Name of the bank/branch Bank Code : 36 37 of 50 BOX 1: Guarantee Status Code BOX 2: Purpose of Borrowings Code Sr. Cod Description Sr. Cod Description ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....& PHARMACEUTICALS 473 PAINTS & WARNISHING 474 SOAPS, DETERGENTS, SHAMPOOS, SHAVING PRODUCT 475 OTHERS 479 OTHERS of Manufacturing (480) CEMENT 481 OTHER BUILDING MATERIALS 482 LEATHER & LEATHER PRODUCTS 483 WOOD PRODUCTS 484 RUBBER GOODS 485 PAPER & PAPER PRODUCTS 486 TYPEWRITERS & OTHER OFFICE EQUIPMENT 487 PRINTING & PUBLISHING 488 MISCELLANEOUS 489 TRADING PROJECTS 500 CONSTRUCTION & TURN KEY 600 TRANSPORT 700 UTILITIES (800) BANKING SECTOR SERVICES TELECOMMUNICATION SERVICES SOFTWARE DEVELOPMENT SERVICES POWER GENERATION, TRANSMISSION & DISTRIBUTION 811 OTHERS 812 888 900 911 912 TECHNICAL ENGINEERING & CONSULTANCY SERVICES TOURS & TRAVEL SERVICES 913 914 COLD STORAGE, CANNING & WAREHOUSING SERVICES 915 MEDIA ADVERTISING & ENTERTAINMENT SERVICES 916 FINANCIAL SERVICES 917 TRANSPORT SERVICES OTHERS (NOT CLASSIFIED ELSEWHERE) 919 999 38 39 of 50 Annex-III ECB - 2 Reporting of actual transactions of External Commercial Borrowings (ECB) under Foreign Exchange Managem....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... NP New project 20 DI Overseas investment in Development of Integrated Township PSU Disinvestment 39 40 of 50 9. 10 ME 11 PW Modernisation /expansion of existing units Power 21 TS Textile/steel Restructuring Package 22 MF Micro finance activity 23 OT Others (Pl. specify) For source of funds for remittances, following codes are to be used. No. Code BOX 2: Source of Funds for remittance Description 1 A Remittance from India 2 B Account held abroad 3 C 4 D Exports proceeds held abroad Conversion of equity capital LO 5 E Others (Specify) FOR RBI (DESACS) Use only CS-DRMS Team Loan_key Received on Action Taken on Loan Classification Part A: Loan Identification Particulars Loan Registration Number (LRN) Loan Amount As per Agreement Revised Currency Amount 40 40 Borrower Particulars Name and address of the Borrower (Block Letters) Contact Person's Name: Designation: Phone No. : Fax no. E-mail ID: 41 of 50 Part B: Actual Transaction Details 1. Draw-down during the month :....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in a calendar Annuity Rate (if annuity payment) year (1, 2, 3, 4, 6, 12) 9. Amount of outstanding loan at the end of the month : Currency Amount: (For RBI Use) We hereby certify that the particulars given above are true and correct to the best of our knowledge and belief. No material information has been withheld and / or misrepresented. Place: Date: Stamp (Signature of Authorised Official) Name : Designation: (For Borrower's use) 42 43 of 50 Place: Date : Place: Certificate from Company Secretary / Chartered Accountant We hereby certify that the ECB availed in terms of approval granted by Government or RBI or under approval route / automatic route is duly accounted in the books of accounts. Further, ECB proceeds have been utilised by the borrower for the purpose of We have verified all the related documents and records connected with the utilisation of ECB proceeds and found these to be in order and in accordance with the terms and conditions of the loan agreement and with the approval granted by Gol (MoF) or RBI or under approval route / automatic route and is in conformity wi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ample, December 31, 2003 should be entered as 2003/12/31 45 45 46 of 50 Form - TC Annex to A.P. (DIR Series) Circular No. 87 dated April 17, 2004 Part II: Disbursement, Utilisation and Debt Servicing of Trade Credit during (month) / (year) Repayments (USD) Date of Sr. Loan Amount No Identific Approved Disburseme Utilisatio Principal nt (USD) In (USD) Inter Oth Total Outstanding Shipment Final lest er (6+7+8) (4-6) Repaym ation No. (USD) cha lent rge S 1 2 3 4 5 6 7 8 9 10 11 12 Note 1: Information in column nos.1, 3 to 10 should be numeric only. No alphabets should be entered in those columns. Note 2: Date format in col. No 11, 12 is YYYY/MM/DD. For example, December 31, 2003 should be entered as 2003/12/31 Certificate by the Authorised Dealer 1. All trade credits for imports approved by all our branches during the month-- 2. 3. · have been included in this statement. Related import documents (including EC copy of Bill of Entry) towards utilisation of such trade credits have been verified and found in order. The drawal, utilisation and repayment of all....