AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
External Commercial Borrowings (ECB)
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.... issues directions to Authorised Persons under Section 11 of the FEMA Act 1999. These directions lay down the modalities as to how the foreign exchange business has to be conducted by the Authorised Persons with their customers/constituents with a view to implementing the regulations framed. External Commercial Borrowings framework: ECBs are commercial loans raised by eligible resident entities from recognised non-resident entities and should conform to parameters such as minimum maturity, permitted and non-permitted end-uses, maximum all-in-cost ceiling, etc. The parameters apply in totality and not on a standalone basis. [ Para 2 of FED Master Direction No.5/2018-19 Dated 26.03.2019 ] ECB Framework [ Para 2.1 of FED Master Direction No.5/2018-19 Dated 26.03.2019 ] The framework for raising loans through ECB (herein after referred to as the ECB Framework) comprises the following two options: Sr. No. Parameters FCY denominated ECB INR denominated ECB i Currency of borrowing Any freely convertible Foreign Currency Indian Rupee (INR) ii Forms of ECB Loans including bank lo....
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....sing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies. IOSCO compliant country: A country whose securities market regulator is • a signatory to the International Organization of Securities Commission's (IOSCO's) Multilateral Memorandum of Understanding (Appendix A Signatories) or • a signatory to bilateral Memorandum of Understanding with the Securities and Exchange Board of India (SEBI) for information sharing arrangements. v Minimum Average Maturity Period (MAMP) MAMP for ECB will be 3 years. Call and put options, if any, shall not be exercisable prior to completion of minimum average maturity. However, for the specific categories mentioned below, the MAMP will be as prescribed therein: Sr. No. Category MAMP a) ECB raised by manufacturing companies up to USD 50 million or its equivalent per financial year. 1 year b) ECB raised from foreign equity holder for working capital purposes, general corporate purposes or for repayment of Rupee loans 5 years c) ECB raised for (i) working capital purposes or general corpor....
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.... change or at an exchange rate, which is less than the rate prevailing on the date of agreement, if consented to by the ECB lender. For conversion to Rupee, exchange rate shall be the rate prevailing on the date of settlement. x Hedging provision The entities raising ECB are required to follow the guidelines for hedging issued, if any, by the concerned sectoral or prudential regulator in respect of foreign currency exposure. Infrastructure space companies shall have a board approved risk management policy. Further, such companies are required to mandatorily hedge 70 per cent of their ECB exposure in case average maturity of ECB is less than 5 years. The designated AD Category-I bank shall verify that 70 per cent hedging requirement is complied with during the currency of ECB and report the position to RBI through Form ECB 2 returns. The following operational aspects with respect to hedging should be ensured: • Coverage: The ECB borrower will be required to cover principal as well as coupon through financial hedges. The financial hedge for all exposures on account of ECB should start from the time of each such exposure (i.e. the day liability is created....
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.... of guarantee by Indian banks, All India Financial Institutions and NBFCs relating to ECB is not permitted. Further, financial intermediaries (viz., Indian banks, All India Financial Institutions, or NBFCs) shall not invest in FCCBs/ FCEBs in any manner whatsoever. [ Para 3 of FED Master Direction No.5/2018-19 Dated 26.03.2019 ] Parking of ECB proceeds [ Para 4 of FED Master Direction No.5/2018-19 Dated 26.03.2019 ] ECB proceeds are permitted to be parked abroad as well as domestically in the manner given below: Parking of ECB proceeds abroad Parking of ECB proceeds domestically ECB proceeds meant only for foreign currency expenditure can be parked abroad pending utilisation. Till utilisation, these funds can be invested in the following liquid assets (a) deposits or Certificate of Deposit or other products offered by banks rated not less than AA (-) by Standard and Poor/Fitch IBCA or Aa3 by Moody's; (b) Treasury bills and other monetary instruments of one-year maturity having minimum rating as indicated above and (c) deposits with foreign branches/subsidiaries of Indian banks abroad ECB proceeds meant for Rupee expenditure should be r....
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....rcial Borrowings Division, Bandra-Kurla Complex, Mumbai - 400 051 (Contact numbers 022-26572513 and 022-26573612). Copies of loan agreement for raising ECB are not required to be submitted to the Reserve Bank. 2. Changes in terms and conditions of ECB: Changes in ECB parameters in consonance with the ECB norms, including reduced repayment by mutual agreement between the lender and borrower, should be reported to the DSIM through revised Form ECB at the earliest, in any case not later than 7 days from the changes effected. While submitting revised Form ECB the changes should be specifically mentioned in the communication. 3. Monthly Reporting of actual transactions: The borrowers are required to report actual ECB transactions through Form ECB 2 Return through the AD Category I bank on monthly basis so as to reach DSIM within seven working days from the close of month to which it relates. Changes, if any, in ECB parameters should also be incorporated in Form ECB 2 Return. 4. Late Submission Fee (LSF) for delay in reporting: 6.4.1. Any borrower, who is otherwise in compliance of ECB guidelines, can regularise the delay in reporting of drawdown of ECB proceed....
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....0/2004-RB and earlier corresponding regulations, up to three years from the date of notification of Foreign Exchange Management (Overseas Investment) Regulations, 2022. • g) In case a person responsible for any submission or filing under the provisions of FEMA, neither makes such submission/filing within the specified time nor makes such submission/filing along with LSF, such person shall be liable for penal action under the provisions of FEMA, 1999. 2. In case the return (whether in physical or electronic form) is incomplete then the delay will continue till such time the return is received complete in all respects. 3. The applicant cannot claim a refund in any manner for the amount already deposited as LSF. 4. The AD banks are required to ensure that there is no delay at their end in forwarding the completed application to the Reserve Bank. Any such delays will render the AD bank for action as laid down in section 11(3) of the Foreign Exchange Management Act, 1999. 5. The LSF shall be paid by way of a demand draft drawn in favour of "Reserve Bank of India" and • i. payable at Mumbai and sent through the designated Auth....
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....turn 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. Powers delegated to AD Category I banks to deal with ECB cases: The designated AD Category I banks can approve any requests from the borrowers for changes in respect of ECB, except for FCCBs/FCEBs, duly ensuring that the changed conditions, including change in name of borrower/lender, transfer of ECB and any other parameters, comply with extant ECB norms and are with the consent of lender(s). Further, the following can also be undertaken under the automatic route: 1. Change of the AD Category I bank: AD Category I bank can be changed subject to obtaining no objection certificate from the existi....
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.... equity". Subsequent filing of Form ECB 2 Return is not required. c. For conversion of ECB into equity in phases, reporting through Form FC-GPR and Form ECB 2 Return will also be in phases. v. If the borrower concerned has availed of other credit facilities from the Indian banking system, including foreign branches/subsidiaries of Indian banks, the applicable prudential guidelines issued by the Department of Banking Regulation of Reserve Bank, including guidelines on restructuring are complied with; vi. Consent of other lenders, if any, to the same borrower is available or atleast information regarding conversions is exchanged with other lenders of the borrower. vii. For conversion of ECB dues into equity, the exchange rate prevailing on the date of the agreement between the parties concerned for such conversion or any lesser rate can be applied with a mutual agreement with the ECB lender. It may be noted that the fair value of the equity shares to be issued shall be worked out with reference to the date of conversion only. 5. Security for raising ECB: AD Category I banks are permitted to allow creation/cancellation of charge on im....
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.... the borrower is permitted. Pledge on other financial securities, viz. bonds and debentures, Government Securities, Government Savings Certificates, deposit receipts of securities and units of the Unit Trust of India or of any mutual funds, standing in the name of ECB borrower/promoter, is also permitted. b) In addition, security interest over all current and future loan assets and all current assets including cash and cash equivalents, including Rupee accounts of the borrower with ADs in India, standing in the name of the borrower/promoter, can be used as security for ECB. The Rupee accounts of the borrower/promoter can also be in the form of escrow arrangement or debt service reserve account. c) In case of invocation of pledge, transfer of financial securities shall be in accordance with the extant FDI/FII policy including provisions relating to sectoral cap and pricing as applicable read with the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017, as amended from time to time. iv. Issue of Corporate or Personal Guarantee: The arrangement shall be subject to the following: a) A copy ....
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....uch ECB. 2. ECB facility for Startups: Authorised Dealer Category-I banks are permitted to allow Startups to raise ECB under the automatic route as per the following framework: i. Eligibility: An entity recognised as a Startup by the Central Government as on date of raising ECB. ii. Maturity: Minimum average maturity period will be 3 years. iii. Recognised lender: Lender / investor shall be a resident of a FATF compliant country. However, foreign branches/subsidiaries of Indian banks and overseas entity in which Indian entity has made overseas direct investment as per the extant Overseas Direct Investment Policy will not be considered as recognised lenders under this framework. iv. Forms: The borrowing can be in form of loans or non-convertible, optionally convertible or partially convertible preference shares. v. Currency: The borrowing should be denominated in any freely convertible currency or in Indian Rupees (INR) or a combination thereof. In case of borrowing in INR, the non- resident lender, should mobilise INR through swaps/outright sale undertaken through an AD Category-I bank in India. vi. Amount: The borrowing per Sta....
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....rther, the Start-ups as defined above [8.2. (i)] as well as other start-ups which do not comply with the aforesaid definition but are eligible to receive FDI, can also raise ECB under the general ECB route/framework. 9. Borrowing by Entities under Investigation: All entities against which investigation / adjudication / appeal by the law enforcing agencies for violation of any of the provisions of the Regulations under FEMA pending, may raise ECB as per the applicable norms, if they are otherwise eligible, notwithstanding the pending investigations / adjudications / appeals, without prejudice to the outcome of such investigations / adjudications / appeals. The borrowing entity shall inform about pendency of such investigation / adjudication / appeal to the AD Category-I bank / RBI as the case may be. Accordingly, in case of all applications where the borrowing entity has indicated about the pending investigations / adjudications / appeals, the AD Category I Banks / Reserve Bank while approving the proposal shall intimate the agencies concerned by endorsing a copy of the approval letter. 10. ECB by entities under restructuring/ ECB facility for refinancing stressed ....