FEMA ECB Policy & Procedures

1. ECB – Policy & Procedures
CA Murali Krishna G
gmk@sbsandco.com
Date: 18th
January 2016
by

2. FEMA Trigger Points
Transaction between person resident in India and Resident outside India
Transaction by Resident in Forex
Transaction by Non Resident in Rupees
Transaction by Resident outside India
Transaction by Non Resident in India
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3. What is ECB
External Commercial Borrowings (ECBs) include
bank loans,
suppliers' and buyers' credits,
fixed and floating rate bonds (without convertibility)
borrowings from private sector windows of multilateral Financial Institutions such as IFC,
ADB, CDC etc..
Euro-issues include Euro-convertible bonds and GDRs.
 Sec.6(3) Of FEMAct,1999 read with Notification No. FEMA 3/ 2000-RB viz. Foreign Exchange
Management (Borrowing or Lending in Foreign Exchange)Regulations, 2000, dated May 3, 2000
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4. Regulator And Importance of ECB
Regulator- CG with the support of RBI
Importance
The ECB policy focuses on three aspects:
Eligibility criteria for accessing external markets;
The total volume of borrowings to be raised and their maturity structure;
End use of the funds raised.
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5. External Commercial Borrowings
Indian companies are allowed to access funds from abroad in the following
Methods:
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ECB FCEBPREF. SHARESFCCBs
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6. Automatic Route- Eligible Borrowers
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 but not Individuals, Trusts and NPOs
 Units in SEZ
 NGO’s Engaged in Micro Finance Activities
 MFIs
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7. Automatic Route- Recognized Lenders (1/2)
International banks,
International capital markets,
Multilateral financial institutions (such as IFC, ADB, CDC, etc.) / regional financial
institutions and Government owned development financial institutions,
Export credit agencies,
Suppliers of equipments,
Foreign collaborators and
Foreign equity holders [other than OCBs]
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8. Automatic Route- Recognized Lenders (2/2)
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9. Amount and Maturity Under Automatic Route (1/2)
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ECB Limit Period of Maturity
Up to 20 Million Minimum average of 3 years
Above 20 and up to 750 Million Minimum average of 5 years
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10. Amount and Maturity Under Automatic Route (2/2)
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Average Maturity Period All in cost ceiling
3-5 years 6 Months LIBOR+ 350 Basis Points
More than 5 years 6 Months LIBOR+ 500 Basis Points
The above ceilings are applicable up to 31/03/2016
All in cost includes:
 Rate of Interest,
 other fees and expenses in foreign currency
 except commitment fees,
 Prepayment fees,
 Fees payable in Indian Rupees and WHT
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11. Automatic Route - Parking of ECB Proceeds
ECB raised abroad meant for Rupee expenditure in India, should be brought
immediately for credit to their Rupee accounts with AD Category I banks in
India;
 ECB proceeds meant only for foreign currency expenditure can be retained
abroad pending utilization.
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12. End Use of Proceeds – Automatic Route
By Corporates in Real, Infrastructure and service sectors
ODI in JV/ WOS
Acquisition of shares in Disinvestment process
IDC for Infrastructure companies
Payment for spectrum allocation- subjected certain conditions
Repayment of Rupee loans
Bridge Finance- subjected certain conditions
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13. End Use of Proceeds – Approval Route
By Corporate’s in Real, Infrastructure and service sectors
ODI in JV/ WOS
Acquisition of shares in Disinvestment process
IDC for Infrastructure companies
NGOs to Self Help Groups and for micro financing activity
Payment for spectrum allocation
IFCs
General Corporate Purposes
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14. End Use of Proceeds – Not Permitted
Onward lending or investment in capital market;
For real estate sector;
General Corporate Purpose and Working Capital (except under approval route);
Repayment of existing rupee loans;
Acquisition of Land.
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15. Security
The choice of security to be provided to the lender/supplier is left to the
borrower;
However, creation of charge over immovable assets and financial securities in
favour of the overseas lender is subject to compliance of specified regulations.
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16. Granting of NOC by AD (1/2)
‘No objection’ for Creation of charge on Immovable assets shall be granted only
to a resident ECB borrower;
 The period of such charge on immovable assets has to be co-terminus with the
maturity of the underlying ECB;
 Such ‘no objection’ should not be construed as a permission to acquire
immovable asset (property) in India, by the overseas lender/ security trustee;
 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;
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17. Granting of NOC by AD (2/2)
No objection’ for pledge of shares shall be granted only to a resident ECB
borrower;
The pledge of shares of the borrowing company as well as domestic associate
companies held by promoters of the borrowing company to secure the ECB
subject to the following conditions:
(i) The period of such pledge shall be co-terminus with the maturity of the
underlying ECB;
(ii) In case of invocation of pledge, transfer shall be in accordance with the
extant FDI policy;
(iii) A certificate from the Statutory Auditor of the company that the ECB
proceeds have been / will be utilized for the permitted end-use/s.
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18. Other Points
Prepayment of ECB up to USD 500 million may be allowed by AD banks without
prior approval of Reserve Bank subject to compliance with the stipulated
minimum average maturity period as applicable to the loan;
The 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.
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19. Approval Route- Eligible Borrowers (1/2)
Eligible borrowers under the automatic route other than corporate’s in the
services sector can avail of ECB beyond USD 750 million or equivalent per
financial year;
Corporate’s in the services sector viz. hotels, hospitals and software sector can
avail of ECB beyond USD 200 million or equivalent per financial year;
Special Purpose Vehicles;
SEZ Developers;
Multi State Cooperative society- Mfg. activity;
(FCCBs) by Housing Finance Companies Satisfying the specified conditions;
Infrastructure Finance Companies (IFCs);
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20. Approval Route- Eligible Borrowers (2/2)
ECB from indirect equity holders provided the indirect equity holding by the
lender in the Indian company is at least 51 per cent;
ECB from a group company provided both the borrower and the foreign lender
are subsidiaries of the same parent;
Total outstanding stock of ECBs (including the proposed ECBs) from a foreign
equity lender does not exceed 7 times the equity holding, either directly or
indirectly of the lender;
Corporates which have violated the extant ECB policy and are under
investigation;
General Corporate Purposes;
Cases falling outside the purview of the automatic route limits and maturity
period.
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21. Application for Prior Approval
Applicants are required to submit an application in form ECB through
designated AD bank along with necessary documents.
The Chief General Manager-in-Charge,
Foreign Exchange Department,
Central Office,
ECB Division,
Reserve Bank of India,
Mumbai – 400 001.
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22. Draw Down/LRN
For allotment of Loan Registration Number (LRN), borrowers are required to
submit Form 83, in duplicate, certified by the CS or CA to the designated AD
bank;
The borrower can draw-down the loan only after obtaining the LRN from DSIM,
Reserve Bank.
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23. Recurring Compliances
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.
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24. Change of Terms and Other Conditions
Earlier for cancellation of LRN and change in the end use of ECB Proceeds-
approval of DSIM is required;
It has been simplified by delegating power to AD Category-I banks for:
1. Cancellation of LRN (Automatic & Approval Route);
2.Change in the end use of ECB proceeds(Automatic route) Subject to certain
conditions.
However, change in the end-use of ECBs availed under the approval route will
continue to be referred to the Foreign Exchange Department, Central Office,
Reserve Bank of India.
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25. Conversion of ECB Into Equity- Conditions
The activity of the company- Automatic Route for FDI ;
OR
Government (FIPB) approval for foreign equity participation has been obtained
by the company, wherever applicable;
The foreign equity holding after such conversion of debt into equity is within
the sectoral cap, if any;
Pricing of shares is as per the pricing guidelines issued under FEMA, 1999 in the
case of listed/ unlisted companies.
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26. Conversion of ECB Into Equity- Reporting
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Full Conversion Partial Conversion
• File Form FC-GPR
• Form ECB-2 with in 7 working days
• "ECB wholly converted to equity" -on top of
the ECB-2
• Subsequent months Filing is not necessary
• File Form FC-GPR
• Form ECB-2 with in 7 working days
• "ECB Partially converted to equity" -on top of
the ECB-2
• Subsequent months Filing is necessary for
remaining portion of O/s ECB
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27. Trade Credits
Suppliers Credit – Where the overseas supplier give credit for certain period
Buyer’s Credit – Where the overseas supplier facilitates the credit from a
foreign bank / financial institution
Maturity period
- Capital Goods - > 1 year and < 5 years from the date of shipment
- Others - < 1 year
Amount – USD 20 Million per shipment
No roll over or extension is permitted
All in cost ceiling
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Maturity Period All-in-cost ceilings over
6 months LIBOR*
Up to one year
350 Basic Points
> 1 year but < 5 years
* for the respective currency of credit or applicable benchmark
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28. Loans from NRI / PIO (1/4)
Borrowing in FC by Individual resident Indian in India:
The lender is a close relative (ref Sec 2(77) of Companies Act, 2013);
The maximum loan amount is USD 250,000 or its equivalent INR;
The loan amount shall be received by CFE/NRE/FCNR funds;
Minimum maturity period of the loan is 1 year;
The loan is free of Interest.
Restriction on end use of Funds:
The borrower shall not engage in Agricultural/ Plantation/ real estate
business/ trading in TDR/ does not act as Nidhi or Chit Fund company;
also the funds shall not be used for investment in capital or otherwise, in any
company or partnership firm or proprietorship concern or any entity, whether
incorporated or not or for re-lending.
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29. Loans from NRI / PIO (2/4)
Borrowing in INR by persons other than Companies in India:
The loan amount shall be received by CFE/NRE/NRO/FCNR funds;
The loan period shall not exceed 3 years;
The Rate of Interest shall not exceed 2% over prevailing bank rate;
The loan amount is not eligible for repatriation (but eligible under USD 1
Million).
• Restriction on end use of Funds:
Same as in previous slide
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30. Loans from NRI / PIO (3/4)
Borrowing in INR by Companies in India:
The amount shall be received by way issue of NCDs;
The issue of NCDs is made by public offer;
The loan period shall not be less than 3 years;
The Rate of Interest shall not exceed 3% over prevailing bank rate;
The company shall file report to RBI within 30 days of receipt.
Additional conditions for repatriation:
The % of investment by NRI shall be within the limits specified under FDI;
The amount has to come by CFE/NRE/FCNR account.
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31. Loans from NRI / PIO (4/4)
Restriction on end use of Funds:
The borrower shall not engage in Agricultural/ Plantation/ real estate
business/ trading in TDR/ does not act as Nidhi or Chit Fund company;
also the funds shall not be used for investment in capital or otherwise, in any
company or partnership firm or proprietorship concern or any entity, whether
incorporated or not or for re-lending.
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