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TMI BlogExternal Commercial Borrowings (ECB)X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 loans; floating/ fixed rate notes/ bonds/ debentures (other than fully and compulsorily convertible instruments); Trade credits beyond 3 years; FCCBs; FCEBs and Financial Lease. Loans including bank loans; floating/ fixed rate notes/ bonds/ debentures/ preference shares (other than fully and compulsorily convertible instruments); Trade credits beyond 3 years; and Financial Lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 corporate purposes (ii) on-lending by NBFCs for working capital purposes or general corporate purposes 10 years d) ECB raised for (i) repayment of Rupee loans availed domestically for capital expenditure (ii) on-lending by NBFCs for the same purpose 7 years e) ECB raised for (i) repayment of Rupee loans availed domestically for purposes other than capital expenditure (ii) on-lending by NBFCs for the same purpose 10 years for the categories mentioned at (b) to (e) - * ECB cannot be raised from foreign branches / subsidiaries of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in the books of the borrower). * Tenor and rollover: A minimum tenor of one year of financial hedge would be required with periodic rollover duly ensuring that the exposure on account of ECB is not unhedged at any point during the currency of ECB. * Natural Hedge: Natural hedge, in lieu of financial hedge, will be considered only to the extent of offsetting projected cash flows / revenues in matching currency, net of all other projected outflows. For this purpose, an ECB may be considered naturally hedged if the offsetting exposure has the maturity/cash flow within the same accounting year. Any other arrangements/ structures, where revenues are indexed to foreign currency will not be considered as nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eposits 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 repatriated immediately for credit to their Rupee accounts with AD Category I banks in India. ECB borrowers are also allowed to park ECB proceeds in term deposits with AD Category I banks in India for a maximum period of 12 months cumulatively. These term deposits should be kept in unencumbered position. 10To provide relief to ECB borrowers affected by the COVID- 19 pandemic, as a one time measure, with effect from April 07, 2021, unutilised ECB proceeds drawn down on or before March 01, 2020 can be parked in term deposits with AD Category-I banks in India prospectively, for an additional period up to March 01, 2022. Procedure of raising ECB: All ECB can be raised under the automatic route if they conform to the parameters prescribed under this framework. For approval route cases, the borrowers may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 proceeds before obtaining LRN or delay in submission of Form ECB/Form ECB 2 returns, by payment of late submission fees in accordance with Part XIII of Master Direction - Reporting under Foreign Exchange Management Act, 1999. Part XIII: Late Submission Fee (LSF) Matrix for Reporting Delays, wherever applicable 1. A person who is liable to pay LSF as per the provisions under FEMA 1999, shall pay such LSF as per the following matrix: S. No. Type of Reporting Delay LSF Amount (INR) 1 Form ODI Part-II/ APR, FCGPR (B), FLA Returns, Form OPI, evidence of investment or any other return which does not capture flows or any other periodical reporting 7500 2 FC-GPR, FCTRS, Form ESOP, Form LLP(I), Form LLP(II), Form CN, Form DI, Form InVi, Form ODI Part I, Form ODI-Part III, Form FC, Form ECB, Form ECB-2, Revised Form ECB or any other return which cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 99. 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 Authorised Dealer Category-I bank (AD bank) to the Director, External Commercial Borrowings Division, Department of Statistics and Information Management, Reserve Bank of India, C-9, Bandra-Kurla Complex, Bandra (East), Mumbai-400 051, accompanying the requisite return(s) for External Commercial Borrowings related transactions. * ii. payable at the Regional Office concerned of the Reserve Bank for Foreign Investment related transactions by way of Demand Draft or NEFT or RTGS. The detailed instructions regarding the same have been provided in the User Manual for FIRMS available on https://firms.rbi.org.in. * iii. payable at the Regional Office concerned of the Reserve Bank in accordance with the UIN mapping as given below for Overseas Investment related transactions: S.No. UIN with prefix UIN mapped to 1 AH RO Ahmedabad 2 BG Ro Bengaluru 3 BL or BY or PJ RO Mumbai 4 BN or CA or CN or GH RO Kolkata 5 CG or JM or JR or KA or ND or PT or WR RO New Delhi 6 HY RO Hyderabad 7 KO or MA RO Chennai Standar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from the existing AD Category I bank. 2. Cancellation of LRN: The designated AD Category I banks may directly approach DSIM for cancellation of LRN for ECB contracted, subject to ensuring that no draw down against the said LRN has taken place and the monthly ECB-2 returns till date in respect of the allotted LRN have been submitted to DSIM. 3. Refinancing of existing ECB: Refinancing of existing ECB by fresh ECB provided the outstanding maturity of the original borrowing (weighted outstanding maturity in case of multiple borrowings) is not reduced and all-in-cost of fresh ECB is lower than the all-in-cost (weighted average cost in case of multiple borrowings) of existing ECB. Further, refinancing of ECB raised under the previous ECB frameworks may also be permitted, subject to additionally ensuring that the borrower is eligible to raise ECB under the extant framework. Raising of fresh ECB to part refinance the existing ECB is also permitted subject to same conditions. Indian banks are permitted to participate in refinancing of existing ECB, only for highly rated corporates (AAA) and for Maharatna/Navratna public sector undertakings. 4. Conversion of ECB into equity: Convers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orate and/or personal guarantees in favour of overseas lender / security trustee, to secure the ECB to be raised/ raised by the borrower, subject to satisfying themselves that: i. the underlying ECB is in compliance with the extant ECB guidelines, ii. there exists a security clause in the Loan Agreement requiring the ECB borrower to create/cancel charge, in favour of overseas lender/security trustee, on immovable assets/movable assets/financial securities/issuance of corporate and/or personal guarantee, and iii. No objection certificate, as applicable, from the existing lenders in India has been obtained in case of creation of charge. Permit for Creation of charge:- Once the aforesaid stipulations are met, the AD Category I bank may permit creation of charge on immovable assets, movable assets, financial securities and issue of corporate and/or personal guarantees, during the currency of the ECB with security co-terminating with underlying ECB, subject to the following: i. Creation of Charge on Immovable Assets: The arrangement shall be subject to the following: a) Such security shall be subject to provisions contained in the Foreign Exchange Management (Acquisition and Trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch guarantees on behalf of the company or in individual capacity should be obtained. b) Specific requests from individuals to issue personal guarantee indicating details of the ECB should be obtained c) Such security shall be subject to provisions contained in the Foreign Exchange Management (Guarantees) Regulations, 2000, as amended from time to time. d) ECB can be credit enhanced / guaranteed / insured by overseas party/ parties only if it/ they fulfil/s the criteria of recognised lender under extant ECB guidelines. 6. Additional Requirements: While exercising the delegated powers, the AD Category I banks should ensure that: i. The changes permitted are in conformity with the applicable ceilings / guidelines and the ECB continues to be in compliance with applicable guidelines. It should also be ensured that if the ECB borrower has availed of credit facilities from the Indian banking system, including foreign branches/subsidiaries of Indian banks, any extension of tenure of ECB (whether matured or not) shall be subject to applicable prudential guidelines issued by Department of Banking Regulation of Reserve Bank including guidelines on restructuring. ii. The changes in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture in connection with the business of the borrower. ix. Conversion into equity: Conversion into equity is freely permitted subject to Regulations applicable for foreign investment in Startups. x. Security: The choice of security to be provided to the lender is left to the borrowing entity. Security can be in the nature of movable, immovable, intangible assets (including patents, intellectual property rights), financial securities, etc. and shall comply with foreign direct investment / foreign portfolio investment / or any other norms applicable for foreign lenders / entities holding such securities. Further, issuance of corporate or personal guarantee is allowed. Guarantee issued by a nonresident(s) is allowed only if such parties qualify as lender under ECB for Startups. However, issuance of guarantee, standby letter of credit, letter of undertaking or letter of comfort by Indian banks, all India Financial Institutions and NBFCs is not permitted. xi. Hedging: The overseas lender, in case of INR denominated ECB, will be eligible to hedge its INR exposure through permitted derivative products with AD Category - I banks in India. The lender can also access the domestic market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and which have been classified as SMA-2 or NPA can avail ECB for repayment of these loans under any one time settlement with lenders. Lender banks are also permitted to sell, through assignment, such loans to eligible ECB lenders, provided, the resultant external commercial borrowing complies with all-in-cost, minimum average maturity period and other relevant norms of the ECB framework. Foreign branches/ overseas subsidiaries of Indian banks are not eligible to lend for the above purposes. The applicable MAMP will have to be strictly complied with under all circumstances. 10.3. Eligible borrowers under the ECB framework, who are participating in the Corporate Insolvency Resolution Process under Insolvency and Bankruptcy Code, 2016 as resolution applicants, can raise ECB from all recognised lenders, except foreign branches/subsidiaries of Indian banks, for repayment of Rupee term loans of the target company. Such ECB will be considered under the approval route, procedure of which is given at paragraph No. 5 above. 11. Dissemination of information: For providing greater transparency, information with regard to the name of the borrower, amount, purpose and maturity of ECB under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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