External Commercial Borrowing (ECB)

RBI Application for raising ECB Loan

Filing of ECB Return per quarter

About ECB
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. The framework for raising loans through ECB (herein after referred to as the ECB Framework) comprises the following three tracks

Track I : Medium term foreign currency denominated ECB with minimum average maturity of 3/5 years.
Track II : Long term foreign currency denominated ECB with minimum average maturity of 10 years.
Track III : Indian Rupee (INR) denominated ECB with minimum average maturity of 3/5 years.

Track I
Track II
Track III
  1. Companies in manufacturing and software development sectors.
  2. Shipping and airlines companies.
  3. Small Industries Development Bank of India (SIDBI).
  4. Units in Special Economic Zones (SEZs).
  5. Export Import Bank of India (Exim Bank) (only under the approval route).
8Companies in infrastructure sector, Non-Banking Financial Companies -Infrastructure Finance Companies (NBFC-IFCs), NBFCs-Asset Finance Companies (NBFC-AFCs), Holding Companies and Core Investment Companies (CICs).
  1. All entities listed under Track I.
9Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (INVITs) coming under the regulatory framework of the Securities and Exchange Board of India (SEBI).
  1. All entities listed under Track II.
  2. All Non-Banking Financial Companies (NBFCs) 10coming under the regulatory purview of the Reserve Bank.
  3. NBFCs-Micro Finance Institutions (NBFCs-MFIs), Not for Profit companies registered under the Companies Act, 1956/2013, Societies, trusts and cooperatives (registered under the Societies Registration Act, 1860, Indian Trust Act, 1882 and State-level Cooperative Acts/Multi-level Cooperative Act/State-level mutually aided Cooperative Acts respectively), Non-Government Organisations (NGOs) which are engaged in micro finance activities1.
  4. Companies engaged in miscellaneous services viz. research and development (R&D), training (other than educational institutes), companies supporting infrastructure, companies providing logistics services.
Developers of Special Economic Zones (SEZs)/ National Manufacturing and Investment Zones (NMIZs).
Notes: 1. Entities engaged in micro-finance activities to be eligible to raise ECB: (i) should have a satisfactory borrowing relationship for at least three years with an AD Category I bank in India, and (ii) should have a certificate of due diligence on ‘fit and proper’ status from the AD Category I bank.

 Recognised Lenders/Investors: The list of recognized lenders / investors for the three tracks will be as follows:

Track I
Track II
Track III
  1. International banks.
  2. International capital markets.
  3. Multilateral financial institutions (such as, IFC, ADB, etc.) / regional financial institutions and Government owned (either wholly or partially) financial institutions.
  4. Export credit agencies.
  5. Suppliers of equipment.
  6. Foreign equity holders.
  7. Overseas long term investors such as:
    1. Prudentially regulated financial entities;
    2. Pension funds;
    3. Insurance companies;
    4. Sovereign Wealth Funds;
    5. Financial institutions located in International Financial Services Centres in India
Overseas branches / subsidiaries of Indian banks2
  1. All entities listed under Track I but for overseas branches / subsidiaries of Indian banks.
  1. All entities listed under Track I but for overseas branches / subsidiaries of Indian banks. In case of NBFCs-MFIs, other eligible MFIs, not for profit companies and NGOs, ECB can also be availed from overseas organisations3 and individuals4.
Notes: 2. Overseas branches / subsidiaries of Indian banks can be lenders only under Track I. Further, their participation under this track is subject to the prudential norms issued by the Department of Banking Regulation, RBI. Indian banks are not permitted to participate in refinancing of existing ECBs.
3. Overseas Organizations proposing to lend ECB would have to furnish to the authorised dealer bank of the borrower a certificate of due diligence from an overseas bank, which, in turn, is subject to regulation of host-country regulators and such host country adheres to the Financial Action Task Force (FATF) guidelines on anti-money laundering (AML)/ combating the financing of terrorism (CFT). The certificate of due diligence should comprise the following: (i) that the lender maintains an account with the bank at least for a period of two years, (ii) that the lending entity is organised as per the local laws and held in good esteem by the business/local community, and (iii) that there is no criminal action pending against it.
4. Individual lender has to obtain a certificate of due diligence from an overseas bank indicating that the lender maintains an account with the bank for at least a period of two years. Other evidence /documents such as audited statement of account and income tax return, which the overseas lender may furnish, need to be certified and forwarded by the overseas bank. Individual lenders from countries which do not adhere to FATF guidelines on AML / CFT are not eligible to extend ECB.

End-use prescriptions: The end-use prescriptions for ECB raised under the three tracks are given in the following table:

Track I
Track II
Track III

ECB proceeds can be utilised for capital expenditure in the form of:

Import of capital goods including payment towards import of services, technical know-how and license fees, provided the same are part of these capital goods; Local sourcing of capital goods; New project; Modernisation /expansion of existing units; Overseas direct investment in Joint ventures (JV)/ Wholly owned subsidiaries (WOS); Acquisition of shares of public sector undertakings at any stage of disinvestment under the disinvestment programme of the Government of India; Refinancing of existing trade credit raised for import of capital goods; Payment of capital goods already shipped / imported but unpaid; Refinancing of existing ECB provided the residual maturity is not reduced.

SIDBI can raise ECB only for the purpose of on-lending to the borrowers in the Micro, Small and Medium Enterprises (MSME sector), where MSME sector is as defined under the MSME Development Act, 2006, as amended from time to time5.

Units of SEZs can raise ECB only for their own requirements5.Shipping and airlines companies can raise ECB only for import of vessels and aircrafts respectively5.

ECB proceeds can be used for general corporate purpose (including working capital) provided the ECB is raised from the direct / indirect equity holder or from a group company for a minimum average maturity of 5 years.

11NBFC-IFCs and NBFCs-AFCs can raise ECB only for financing infrastructure.
12Holding Companies and CICs shall use ECB proceeds only for on-lending to infrastructure Special Purpose Vehicles (SPVs).
ECBs for the following purposes will be considered only under the approval route5:
Import of second hand goods as per the Director General of Foreign Trade (DGFT) guidelines;
On-lending by Exim Bank.

1. The ECB proceeds can be used for all purposes excluding the following:

  1. Real estate activities
  2. Investing in capital market
  3. Using the proceeds for equity investment domestically;
  4. On-lending to other entities with any of the above objectives;
  5. Purchase of land

NBFCs can use ECB proceeds only for:

14On-lending for any activities, including infrastructure sector as permitted by the concerned regulatory department of RBI;
providing hypothecated loans to domestic entities for acquisition of capital goods/equipment; and providing capital goods/equipment to domestic entities by way of lease and hire-purchases

2. Developers of SEZs/ NMIZs can raise ECB only for providing infrastructure facilities within SEZ/ NMIZ.

3. NBFCs-MFI, other eligible MFIs, NGOs and not for profit companies registered under the Companies Act, 1956/2013 can raise ECB only for on-lending to self-help groups or for micro-credit or for bonafide micro finance activity including capacity building.

4. For other eligible entities under this track, the ECB proceeds can be used for all purposes excluding the following:

Real estate activities Investing in capital market Using the proceeds for equity investment domestically; On-lending to other entities with any of the above objectives; Purchase of land

Notes: 5. The respective conditions will be applicable for all three tracks.

ECB can be raised by eligible entities under the automatic route per financial year for all the three tracks are set out as under:

  1. Up to USD 750 million or equivalent for the companies in infrastructure and manufacturing sectors, 15Non-Banking Financial Companies -Infrastructure Finance Companies (NBFC-IFCs), NBFCs-Asset Finance Companies (NBFC-AFCs), Holding Companies and Core Investment Companies;
  2. Up to USD 200 million or equivalent for companies in software development sector;
  3. Up to USD 100 million or equivalent for entities engaged in micro finance activities; and
  4. Up to USD 500 million or equivalent for remaining entities.

For raising ECB, through a Foreign Lender, you need to provide:
(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.

 

For filing of ECB Return, you need to provide:
Original ECB Agreement with modifications
Statement of ECB Loan for the quarter / year
Previous ECB Returns filed with the RBI

On an average it takes 2-3 months to successfully raise ECB Loan with the Reserve Bank of India.

ECB Return takes 3-4 working days.

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