CHAPTER

1  

1A
 
 
                             
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

External
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Borrowings
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

RBI Master Direction on ECB

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

dated March 26, 2019

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(Updated as on
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

August 08, 2019)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Master Direction  
 
 
 Eco. Laws External Commercial
1A
Borrowings
                                       
Para.
Particulars
No.
1 Important Terms Used under ECB Framework
Part I - External Commercial Borrowings Framework
2 Introduction
2.1 External Commercial Borrowings Framework
2.2 Limit and leverage
3 Issuance of Guarantee, etc. by Indian banks and Financial Institutions
4 Parking of ECB proceeds
5 Procedure of raising ECB
6 Reporting Requirements
7 Powers delegated to AD Category I banks to deal with ECB cases
8 Special Dispensations under the ECB framework
9 Borrowing by Entities under Investigation
10 ECB by entities under restructuring/ ECB facility for refinancing stressed assets
11 Dissemination of information
12 Compliance with the guidelines
 
ACRONYMS
 
No. Acronyms Full Forms
1. AD Authorised Dealer
2. AIC All-in-Cost
3. AMP Average Maturity Period
4. CIRP Corporate Insolvency Resolution Process
5. DSIM Department of Statistics and Information Management
6. DTA Domestic Tariff Area
7. ECA Export Credit Agency
8. ECB External Commercial Borrowings
9. EURIBOR Euro Interbank Offered Rate
10. FATF Financial Action Task Force
11. FCCB Foreign Currency Convertible Bond
12. FCEB Foreign Currency Exchangeable Bond
13. FCY Foreign Currency
14. FDI Foreign Direct Investment
15. FEMA Foreign Exchange Management Act
16. FTWZ Free Trade and Warehousing Zone
17. IFSC International Financial Services Centre
18. INR Indian Rupee
19. LIBOR London Interbank Offered Rate
20. LIN Loan Identity Number
21. LRN Loan Registration Number
22. NBFC Non-Banking Financial Company
23. RBI Reserve Bank of India
24. SEBI Securities and Exchange Board of India
25. SEZ Special Economic Zone
26. SIDBI Small Industries Development Bank of India
27. TC Trade Credit
28. USD United States Dollar
 
29. XBRL eXtensible Business Reporting Language

© Siddharth Agarwal. All Rights Reserved.

1.51
 
 External Commercial Eco. Laws
1A
Borrowings
                                       
1. Important Terms Used under ECB Framework
Topic Detailed Explanation
All-in-Cost It includes -
(i) rate of interest,
(ii) other fees,
(iii) expenses,
(iv) charges,
(v) guarantee fees,
(vi) ECA charges,
whether paid in foreign currency or INR
but WILL NOT INCLUDE
(a) commitment fees and
(b) withholding tax payable in INR.

Approval Route Under the ECB/TC framework, ECB/TC can be raised either under the automatic
route or under the approval route. Under the approval route, the prospective
borrowers are required to send their requests to the Reserve Bank through
their AD Banks for examination.
Automatic For the automatic route, the cases are examined by the Authorised Dealer
Route Category-I (AD Category-I) Banks.
Benchmark
In case of FCY Benchmark Rate in case of FCY ECB/TC refers to -
Rate
ECB/TC (1) 6-months LIBOR rate of different currencies or
(2) any other 6-month interbank interest rate applicable to the
currency of borrowing. Example: EURIBOR.

In case of Benchmark rate in case of Rupee denominated ECB/TC will be

Rupee prevailing yield of the Government of India securities of
denominated corresponding maturity.
ECB/TC
.

Designated It is the bank branch which is designated by the ECB borrower for meeting the
Authorised reporting requirements including obtaining of the LRN/LIN from the Reserve Bank,
Dealer Category exercising the delegated powers under these guidelines and monitoring of ECB
I Bank transactions.
.

ECB Liability-
For the purpose of ECB liability-equity ratio-
Equity Ratio
ECB (a) All outstanding amount of all ECB (other than `
amount will denominated) AND
include (b) Proposed ones.
.

Equity will (a) Paid-up capital and

include (b) Free Reserves (including the share premium received in foreign
currency).
.

© Siddharth Agarwal. All Rights Reserved.

1.52
 
 Eco. Laws External Commercial
1A
Borrowings
                                       
Topic Detailed Explanation
Note:
(1) Both ECB and equity amounts will be calculated with respect to the foreign
equity holder.
(2) Where there is more than 1 foreign equity holder in the borrowing company, the
portion of the share premium in foreign currency brought in by the lender(s)
concerned shall only be considered for calculating the ratio.
(3) The ratio will be calculated as per latest audited balance sheet.
.

FATF A country that is -

Compliant (a) a member of the Financial Action Task Force (FATF) or
Country (b) a member of a FATF-Style Regional Body; and
(c) should not be a country identified in the public statement of the FATF as -
(i) A jurisdiction having a strategic Anti-Money Laundering or Combating the
Financing of Terrorism deficiencies to which counter measures apply; or
(ii) A jurisdiction that has not made sufficient progress in addressing the
deficiencies or has not committed to an action plan developed with the FATF
to address the deficiencies.
.

Foreign It refers to foreign currency denominated instruments which are issued in accordance
Currency with the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through
Convertible Depositary Receipt Mechanism) Scheme, 1993, as amended from time to time.
Bonds (FCCBs) Issuance of FCCBs shall also conform to other applicable regulations. Further, FCCBs
should be without any warrants attached.
.

Foreign (a) It refers to foreign currency denominated instruments which are issued in
Currency accordance with the Issue of Foreign Currency Exchangeable Bonds Scheme,
Exchangeable 2008, as amended from time to time.
Bonds (FCEBs) (b) FCEBs are exchangeable into equity share of another company, to be called the
Offered Company, in any manner, either wholly, or partly or on the basis of any
equity related warrants attached to debt instruments.
(c) Issuance of FCEBs shall also conform to other applicable regulations.
.

Foreign Equity It means -

Holder (a) Direct foreign equity holder with ≥ 25% direct equity holding in the borrowing
entity,
(b) Indirect equity holder with ≥ 51% of indirect equity holding, or
(c) Group company with common overseas parent.
.

Infrastructure It has the same meaning as given in the Harmonised Master List of Infrastructure sub-
Sector sectors, approved by GOI vide Notification F. No. 13/06/2009-INF, as amended /
updated from time to time. For the purpose of ECB, “Exploration, Mining and
Refinery” sectors will be deemed as in the infrastructure sector.
.

Infrastructure (1) Companies in the Infrastructure Sector,

Space (2) NBFC undertaking Infrastructure Financing,
Companies (3) Holding Companies/ Core Investment Companies undertaking Infrastructure
Financing,
(4) Housing Finance Companies regulated by National Housing Bank and Port Trusts
(constituted under the Major Port Trusts Act, 1963 or Indian Ports Act, 1908).
.

© Siddharth Agarwal. All Rights Reserved.

1.53
 
 External Commercial Eco. Laws
1A
Borrowings
                                       
Topic Detailed Explanation
IOSCO A country whose securities market regulator is a signatory to the International
Compliant Organisation of Securities Commission's (IOSCO’s) Multilateral Memorandum of
Country Understanding (Appendix A Signatories) or a signatory to bilateral Memorandum of
Understanding with the SEBI for information sharing arrangements.
Real Estate Any real estate activity involving own or leased property, for buying, selling and renting
Activities of commercial and residential properties or land and also includes activities either on
a fee or contract basis assigning real estate agents for intermediating in buying, selling,
letting or managing real estate.
Real Estate Activities does not include the following: -
(i) Construction/Development of Industrial Parks/Integrated Townships/SEZ
(ii) Purchase/Long Term Leasing of Industrial Land as part of new
project/modernisation of expansion of existing units and
(iii) any activity under ‘Infrastructure Sector’ definition.
.

 
2. Introduction to ECB Framework
External Commercial Borrowings 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 given below apply in totality and not on
a standalone basis.
 
2.1 ECB Framework
The framework for raising loans through ECB (hereinafter referred to as the ECB Framework) comprises
the following 2 options:
(a) FCY denominated ECB
(b) INR denominated ECB
 
Sr
Parameters FCY denominated ECB INR denominated ECB
No.
(i) Currency of Any freely convertible Foreign Currency Indian Rupee (INR)
borrowing
(ii) Forms of ECB Loans including - Loans including -
(1) bank loans; (1) bank loans;
(2) floating/ fixed rate notes/ bonds/ (2) floating/ fixed rate
debentures (other than fully and notes/bonds/ debentures/
compulsorily convertible instruments); preference shares (other than
(3) Trade credits beyond 3 years; fully and compulsorily
(4) FCCBs; convertible instruments);
(5) FCEBs and (3) Trade credits beyond 3 years;
(6) Financial Lease. and Financial Lease.
Note:
Plain vanilla Rupee
denominated bonds issued
overseas, which can be either
placed privately or listed on
© Siddharth Agarwal. All Rights Reserved.
1.54
 
 Eco. Laws External Commercial
1A
Borrowings
                                       
Sr
Parameters FCY denominated ECB INR denominated ECB
No.
exchanges as per host country
regulations.
.

(iii) Eligible All entities eligible to receive FDI. (a) All entities eligible to raise
borrowers The following entities are also FCY ECB; and
eligible to raise ECB: (b) Registered entities engaged in
(i) Port Trusts; micro-finance activities, viz.,
(ii) Units in SEZ; registered Not for Profit
(iii) SIDBI; and companies, registered
(iv) EXIM Bank of India. societies/trusts/ cooperatives
. and NGOs.

(iv) Recognised The lender should be resident of FATF or IOSCO compliant country.
lenders However,
(a) Multilateral and Regional Financial Institutions where India is a member
country will also be considered as recognised lenders;
(b) Individuals as lenders can only be permitted if they are foreign equity holders
or for subscription to bonds/debentures listed abroad; and
(c) Foreign branches / subsidiaries of Indian banks are permitted as recognised
lenders only for FCY ECB (except FCCBs and FCEBs).
(d) Foreign branches / subsidiaries of Indian banks, subject to applicable
prudential norms, can participate as arrangers/underwriters/market-
makers/traders for Rupee denominated Bonds issued overseas.
Note:
Underwriting by Foreign Branches/Subsidiaries of Indian banks for
issuances by Indian banks will not be allowed.
.

(v) Minimum (1) MAMP for ECB will be 3 years.

Average (2) Call and put options, if any, shall not be exercisable prior to completion of
Maturity minimum average maturity.
Period For the specific categories mentioned below, the MAMP will be as
(MAMP) prescribed therein:
No. Category MAMP
(a) ECB raised by manufacturing companies ≤ $ 50 1 Year
million per F.Y
(b) ECB raised from foreign equity holder for 5 Years
working capital purposes, general corporate
purposes or for repayment of Rupee loans
(c) ECB raised for: - 10 Years
(i) Working Capital Purposes or General
Corporate Purposes
(ii) On-lending by NBFCs for Working Capital
Purposes or General Corporate Purposes
(d) ECB raised for: - 7 Years
(i) repayment of Rupee loans availed domestically
for capital expenditure
© Siddharth Agarwal. All Rights Reserved.
1.55
 
 External Commercial Eco. Laws
1A
Borrowings
                                       
Sr
Parameters FCY denominated ECB INR denominated ECB
No.
(ii) on-lending by NBFCs for the same purpose
(e) ECB raised for: - 10 Years
(i) repayment of Rupee loans availed domestically
for purposes other than capital expenditure
(ii) on-lending by NBFCs for the same purpose
for the categories mentioned at (b) to (e) –
(i) ECB cannot be raised from foreign branches / subsidiaries of Indian Banks
(ii) the prescribed MAMP will have to be strictly complied with under all
circumstances.
(vi) All-in-cost Benchmark rate plus 450 bps spread.
ceiling per
annum
(vii) Other costs Prepayment charge/ Penal interest, if any, for default or breach of covenants,
should ≤ 2% over and above the contracted rate of interest on the outstanding
principal amount and will be outside the all-in-cost ceiling.
(viii) End-uses The negative list, for which the ECB proceeds cannot be utilised, would include
(Negative the following:
list) (a) Real estate activities.
(b) Investment in capital market.
(c) Equity investment.
(d) Working capital purposes, except in case of ECB mentioned at v(b) and v(c)
above.
(e) General corporate purposes, except in case of ECB mentioned at v(b) and v(c)
above.
(f) Repayment of Rupee loans, except in case of ECB mentioned at v(d) and v(e)
above.
(g) On-lending to entities for the above activities, except in case of ECB raised by
NBFCs as given at v(c), v(d) and v(e) above.
(ix) Exchange Conversion of Currency of FCY ECB Conversion to Rupee
rate into INR ECB For conversion to Rupee, the
Change of currency of FCY ECB into INR exchange rate shall be the rate
ECB can be at the exchange rate prevailing on the date of
prevailing on the date of the agreement settlement.
for such change between the parties
concerned or at an exchange rate, which is
less than the rate prevailing on the date of
the agreement, if consented to by the ECB
lender.
(x) Hedging The entities raising ECB are required to (1) Overseas investors are eligible
provision follow the guidelines for hedging issued, if to hedge their exposure in `
any, by the concerned sectoral or prudential through permitted derivative
regulator in respect of foreign currency products with AD Category I
exposure. banks in India.

© Siddharth Agarwal. All Rights Reserved.

1.56
 
Eco. Laws External Commercial
1A
Borrowings
                                       
Sr
Parameters FCY denominated ECB INR denominated ECB
No.
Infrastructure Space Companies (2) The investors can also access
(1) Infrastructure space companies shall the domestic market through
have a Board approved risk branches / subsidiaries of
management policy. Indian banks abroad or
(2) Such companies are required to branches of foreign banks with
mandatorily hedge 70% of their ECB Indian presence on a back to
exposure in case the average maturity of back basis.
the ECB is < 5 years.
(3) The designated AD Category-I bank
shall verify that 70% hedging
requirement is complied with during the
currency of the ECB and report the
position to RBI through Form ECB 2.
The following operational aspects w.r.t
hedging should be ensured: -
(a) Coverage: The ECB borrower will be
required to cover the principal as well as
the 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
the liability is created in the books of the
borrower).
(b) Tenor and Rollover: A minimum tenor
of 1 year for the 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 the ECB.
(c) 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 a
natural hedge.

© Siddharth Agarwal. All Rights Reserved.

1.57
 
 External Commercial Eco. Laws
1A
Borrowings
                                       
Sr
Parameters FCY denominated ECB INR denominated ECB
No.
(xi) Change of Change of currency of ECB from one freely Change of currency from INR to
currency of convertible foreign currency to any other any freely convertible foreign
borrowing freely convertible foreign currency as well as currency is NOT permitted.
to INR is FREELY permitted.
 
Note:
(1) The ECB framework is not applicable in respect of investments in Non-Convertible Debentures in India
made by Registered Foreign Portfolio Investors.
(2) Lending and borrowing under the ECB framework by Indian banks and their branches/subsidiaries
outside India will be subject to prudential guidelines issued by the Department of Banking Regulation
of the Reserve Bank.
(3) Other entities raising ECB are required to follow the guidelines issued, if any, by the concerned sectoral
or prudential regulator.
 
2. 2 Limit and Leverage
(1) All eligible borrowers can raise ECB ≤ $ 750 million per F.Y under the automatic route.
(2) In case of FCY denominated ECB raised from direct foreign equity holder, ECB liability-equity ratio for
ECB raised under the automatic route ≤ 7:1.
Note:
(a) The above ratio will not be applicable if: -
[Outstanding Amount of all ECB + Proposed ECB ≤ $ 5 million]
(b) The borrowing entities will also be governed by the guidelines on D/E Ratio, issued, if any, by
the sectoral or prudential regulator concerned.
.

 
3. Issuance of Guarantee, etc. by Indian banks and FIs
 
(1) Issuance of any type of guarantee by Indian banks, All India FIs and NBFCs relating to ECB is NOT
permitted.
(2) Financial intermediaries (viz., Indian banks, All India FIs, or NBFCs) shall NOT invest in FCCBs/ FCEBs
in any manner whatsoever.
.

 
4. Parking of ECB Proceeds
 
ECB proceeds are permitted to be parked abroad as well as domestically in the manner given below:
 

Topic Detailed Explanation

Parking of ECB ECB proceeds meant only for foreign currency expenditure can be parked abroad
Proceeds pending utilisation.
Abroad
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 ≥ AA(-
) by Standard and Poor/Fitch IBCA or Aa by Moody’s;
(b) Treasury bills and other monetary instruments of 1-year maturity having
minimum rating as indicated above and

© Siddharth Agarwal. All Rights Reserved.

1.58
 
 Eco. Laws External Commercial
1A
Borrowings
                                       
Topic Detailed Explanation
(c) deposits with foreign branches/subsidiaries of Indian banks abroad.
Parking of ECB (1) ECB proceeds meant for Rupee expenditure should be repatriated immediately for
Proceeds credit to their Rupee accounts with AD Category I Banks in India.
Domestically (2) ECB borrowers are also allowed to park ECB proceeds in Term Deposits with AD
Category I banks in India for ≤ 12 months cumulatively.
(3) These Term Deposits should be kept in unencumbered position.

5. Procedure of raising ECB

 
(1) All ECB can be raised under the Automatic Route if they conform to the parameters prescribed
under this framework.
(2) For Approval Route cases,
(a) the borrowers may approach the RBI with an application in prescribed format (Form ECB) for
examination through their AD Category I bank.
(b) Such cases shall be considered keeping in view the overall guidelines, macroeconomic situation and
merits of the specific proposals.
(c) ECB proposals received in the Reserve Bank above certain threshold limit (re-fixed from time to
time) would be placed before the Empowered Committee set up by the Reserve Bank.
(d) The Empowered Committee will have external as well as internal members and the Reserve Bank
will take a final decision in the cases taking into account recommendation of the Empowered
Committee.
(e) Entities desirous to raise ECB under the automatic route may approach an AD Category I bank with
their proposal along with duly filled in Form ECB.
 
6. Reporting Requirements
 
Borrowings under ECB Framework are subject to following reporting requirements apart from any other
specific reporting required under the framework:
 
Topic Detailed Explanation
Loan Any draw-down in respect of an ECB should happen only after obtaining the LRN from
Registration the Reserve Bank.
Number (LRN)
Procedure to obtain LRN
(1) Borrowers are required to submit duly certified Form ECB, which also contains
terms and conditions of the ECB, in duplicate to the designated AD Category I
bank.
(2) In turn, the AD Category I bank will forward one copy to the Director, RBI,
Department of Statistics and Information Management, ECB Division, Bandra-
Kurla Complex, Mumbai – 400 051 (Contact numbers 022-26572513 and 022-
26573612).
(3) Copies of loan agreement for raising ECB are not required to be submitted to the
Reserve Bank.

© Siddharth Agarwal. All Rights Reserved.

1.59
 
 External Commercial Eco. Laws
1A
Borrowings
                                       
Topic Detailed Explanation
Changes in  Changes in ECB parameters in consonance with the ECB norms,
terms and  including reduced repayment by mutual agreement between the lender and
Conditions of borrower,
ECB  should be reported to the DSIM through revised Form ECB at the earliest, in any
case ≤ 7 days from the changes effected.
Note:
While submitting revised Form ECB the changes should be specifically mentioned
in the communication.
.

Monthly  The borrowers are required to report actual ECB transactions

Reporting of  through Form ECB 2 Return
Actual  through the AD Category I bank
Transactions  on monthly basis
 so as to reach DSIM ≤ 7 working days from the close of month to which it relates.
.

Note:
Changes, if any, in ECB parameters should also be incorporated in Form ECB 2
Return.
.

Late Any borrower, who is otherwise in compliance of ECB guidelines, can regularise the
Submission Fee delay in reporting of drawdown of ECB proceeds before obtaining LRN or delay in
(LSF) for Delay submission of Form ECB 2 returns, by payment of late submission fees as detailed in
in Reporting the following matrix:
.

Type of
No. Period of Delay Applicable LSF
Return/Form
1. Form ECB 2 ≤ 30 Calendar Days from due date INR 5,000
of submission
2. Form ECB ≤ 3 Years from due date of INR 50,000 per
2/Form ECB submission/date of drawdown year
3. Form ECB > 3 years from due date of INR 100,000 per
2/Form ECB submission/date of drawdown year
Note:
(1) The borrower, through its AD bank, may pay the LSF by way of demand draft in
favour of “Reserve Bank of India” or any other mode specified by the Reserve
Bank.
(2) Such payment should be accompanied with the requisite return(s).
(3) Form ECB and Form ECB 2 returns reporting contraventions will be treated
separately.
(4) Non-payment of LSF will be treated as contravention of reporting provision and
shall be subject to compounding or adjudication as provided in FEMA 1999 or
regulations/rules framed thereunder.
.

Standard The following SOP has to be followed by designated AD Category-I banks in case of
Operating untraceable entities who are found to be in contravention of reporting provisions for
Procedure ECB by failing to submit prescribed return(s) under the ECB framework, either
(SOP) for physically or electronically, for past 8 quarters or more.

© Siddharth Agarwal. All Rights Reserved.

1.60
 
 Eco. Laws External Commercial
1A
Borrowings
                                       
Topic Detailed Explanation
Untraceable (i) Definition: Any borrower who has raised ECB will be treated as ‘untraceable
Entities entity’, if entity/auditor(s)/director(s)/ promoter(s) of entity are not
reachable/responsive/reply in negative over email/letters/phone for a period ≥
2 quarters with documented communication/ reminders numbering 6 or more
and it fulfills both of the following conditions:
(a) Entity not found to be operative at the registered office address as per records
available with the AD Bank or not found to be operative during the visit by the
officials of the AD Bank or any other agencies authorised by the AD bank for
the purpose;
(b) Entities have not submitted Statutory Auditor’s Certificate for last 2 years or
more;
(ii) Action: The followings actions are to be undertaken in respect of ‘untraceable
entities’:
(a) File Revised Form ECB, if required, and last Form ECB 2 Return 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) DOE should be informed whenever any entity is designated
‘UNTRACEABLE ENTITY’; and
(d) No inward remittance or debt servicing will be permitted under auto route.
 
7. 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).
 
The following can also be undertaken under the Automatic Route:
 

Topic Detailed Explanation

Change of the AD Category I bank can be changed subject to obtaining no objection certificate from
AD Category I the existing AD Category I bank.
Bank
Cancellation of The designated AD Category I banks may directly approach DSIM for cancellation of
LRN 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.
Refinancing of (1) Refinancing of existing ECB by fresh ECB provided the outstanding maturity of the
existing ECB original borrowing (weighted outstanding maturity in case of multiple borrowings)

© Siddharth Agarwal. All Rights Reserved.

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 External Commercial Eco. Laws
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Borrowings
                                       
Topic Detailed Explanation
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.
(2) 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.
(3) 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.
Conversion of Conversion of ECB, including those which are matured but unpaid, into equity
ECB into Equity is permitted subject to the following conditions:
(i) The activity of the borrowing company is covered under the automatic route for
FDI or Government approval is received, wherever applicable, for foreign equity
participation as per extant FDI policy.
(ii) The conversion, which should be with the lender’s consent and without any
additional cost, should not result in contravention of eligibility and breach of
applicable sector cap on the foreign equity holding under FDI policy;
(iii) Applicable pricing guidelines for shares are complied with;
(iv) In case of partial or full conversion of ECB into equity, the reporting to
the Reserve Bank will be as under:
a) For partial conversion, the converted portion is to be reported in Form FC-
GPR prescribed for reporting of FDI flows, while monthly reporting to DSIM
in Form ECB 2 Return will be with suitable remarks, viz., "ECB partially
converted to equity".
b) For full conversion, the entire portion is to be reported in Form FC-GPR,
while reporting to DSIM in Form ECB 2 Return should be done with remarks
“ECB fully converted to 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 at least
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.
Security for AD Category I banks are permitted to allow creation/cancellation of charge on
raising ECB immovable assets, movable assets, financial securities and issue of corporate 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:

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Topic Detailed Explanation
(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.
Additional While exercising the delegated powers, the AD Category I Banks should ensure that:
Requirements (1)(a) The changes permitted are in conformity with the applicable ceilings / guidelines
and the ECB continues to be in compliance with applicable guidelines.
(b) 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.
(2) The changes in the terms and conditions of ECB allowed by the ADs under the
powers delegated and / or changes approved by the Reserve Bank should be
reported to the DSIM. Further, these changes should also get reflected in the Form
ECB 2 returns appropriately.
 
 

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:
Creation of The arrangement shall be subject to the following:
Charge on (a) Such security shall be subject to provisions contained in the Foreign Exchange
Immovable Management (Acquisition and Transfer of Immovable Property in India)
Assets Regulations, 2017, as amended from time to time.
(b) The permission should not be construed as a permission to acquire immovable
asset (property) in India, by the overseas lender/ security trustee.
(c) In the event of enforcement / invocation of the charge, the immovable asset/
property will have to be sold only to a person resident in India and the sale
proceeds shall be repatriated to liquidate the outstanding ECB.
Creation of In the event of enforcement/ invocation of the charge, the claim of the lender, whether
Charge on the lender takes over the movable asset or otherwise, will be restricted to the
Movable Assets outstanding claim against the ECB. Encumbered movable assets may also be taken out
of the country subject to getting ‘No Objection Certificate’ from domestic lender/s, if
any.
Creation of The arrangements may be permitted subject to the following:
Charge over (a) Pledge of shares of the borrowing company held by the promoters as well as in
Financial domestic associate companies of the borrower is permitted. Pledge on other
Securities 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.

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(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.
Issue of The arrangement shall be subject to the following:
Corporate or (a) A copy of Board Resolution for the issue of corporate guarantee for the company
Personal issuing such guarantee, specifying name of the officials authorised to execute such
Guarantee 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.
 
8. Special Dispensations under the ECB Framework
 
ECB facility for Oil Marketing Companies:
(1) Notwithstanding the provisions contained with regard to End-users (Negative List), Hedging Provisions
and Limit and Leverage, Public Sector Oil Marketing Companies (OMCs) can raise ECB for working
capital purposes with minimum average maturity period of 3 years from all recognised lenders under
the automatic route without mandatory hedging and individual limit requirements.
(2) The overall ceiling for such ECB shall be $ 10 billion or equivalent.
(3) OMCs should have a Board approved forex mark to market procedure and prudent risk management
policy, for such ECB. All other provisions under the ECB framework will be applicable to such ECB.
 
ECB facility for Start-ups:
AD Category-I banks are permitted to allow Start-ups to raise ECB under the automatic route as per the
following framework:
Eligibility An entity recognised as a Start-up by the CG as on date of raising ECB.
Maturity Minimum average maturity period will be 3 years.
Recognised Lender / investor shall be a resident of a FATF compliant country. However, foreign
Lender 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.
Forms The borrowing can be in form of loans or non-convertible, optionally convertible or
partially convertible preference shares.
Currency The borrowing should be denominated in any freely convertible currency or in Indian
Rupees (INR) or a combination thereof.

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Note:
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.
.

Amount The borrowing per Start-up will be limited to ≤ $ 3 million per F.Y either in INR or any
convertible foreign currency or a combination of both.
.

All-in-Cost Shall be mutually agreed between the borrower and the lender.
.

End Uses For any expenditure in connection with the business of the borrower.
.

Conversion into Conversion into equity is freely permitted subject to Regulations applicable for foreign
Equity investment in Start-ups.
.

Security (1) The choice of security to be provided to the lender is left to the borrowing entity.
(2) The issuance of corporate or personal guarantee is allowed.
(3) Guarantee issued by a NR(s) is allowed only if such parties qualify as lender under
ECB for Start-ups.
(4) However, issuance of guarantee, stand by letter of credit, letter of undertaking or
letter of comfort by Indian banks, all India Financial Institutions and NBFCs is not
permitted.
.

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.
.

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 through branches/ subsidiaries of
Indian banks abroad or branches of foreign bank with Indian presence on a back to
back basis.
.

Note: Start-ups raising ECB in foreign currency, whether having natural hedge or
not, are exposed to currency risk due to exchange rate movements and hence are
advised to ensure that they have an appropriate risk management policy to manage
potential risk arising out of ECB.
.

Conversion In case of borrowing in INR, the foreign currency - INR conversion will be at the market
Rate rate as on the date of agreement.
. .

Other Other provisions like parking of ECB proceeds, reporting arrangements, powers
Provisions delegated to AD banks, borrowing by entities under investigation, conversion of ECB
into equity will be as included in the ECB framework. However, provisions on leverage
ratio and ECB liability: Equity ratio will not be applicable. Further, 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.
. .

 
 
 
 
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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.
Information to AD Category I Bank: The borrowing entity shall inform about pendency of such
investigation / adjudication / appeal to the AD Category-I bank / RBI as the case may be.
AD Category I Bank shall intimate Agencies: 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 Assets
 
Topic Detailed Explanation
Raise ECB An entity which is under a restructuring scheme/ corporate insolvency resolution
process can raise ECB only if specifically permitted under the resolution plan.
Eligible (1) Eligible corporate borrowers who have availed Rupee loans domestically for capital
Borrowers expenditure in manufacturing and infrastructure sector 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.
(2) Lender banks are also permitted to sell, through assignment, such loans to eligible
ECB lenders, provided, the resultant ECB complies with all-in-cost, MAMP and
other relevant norms of the ECB framework.
(3) Foreign branches/ overseas subsidiaries of Indian banks are not eligible to lend for
the above purposes.
(4) The applicable MAMP will have to be strictly complied with under all
circumstances.
Borrowers Eligible borrowers under the ECB framework, who are participating in the CIRP under
participating in IBC, 2016 as resolution applicants, can raise ECB from all recognised lenders, except
CIRP under foreign branches/subsidiaries of Indian banks, for repayment of Rupee term loans of
IBC, 2016 the target company. Such ECB will be considered under the approval route.
 
 
 
 
 
 
 

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11. 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 RBI’s website, on a monthly basis, with a lag
of 1 month to which it relates.
 
12. Compliance with the Guidelines
 
(1) The primary responsibility for ensuring that the borrowing is in compliance with the applicable
guidelines is that of the BORROWER concerned.
(2) Any contravention of the applicable provisions of ECB guidelines will invite penal action under the
FEMA.
(3) The designated AD Category I bank is also expected to ensure compliance with applicable ECB
guidelines by their constituents.
 
 
 

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