External Commercial Borrowing by CA. Sudha G. Bhushan

ExternalCommercialBorrowings
ByCA.SudhaG.Bhushan
||9769033172||sudha@taxpertpro.com
1CA. Sudha G. Bhushan || Sudha@taxpertpro.com || 9769033172

Framework of Lending and Borrowing
2
Section 6 of FEMA
1999
Relevant RBI
Regulations: FEMA 1,
FEMA 3(R), FEMA 5(R),
FEMA 8 (as amended
from time to time)
RBI'S A.P. DIR Circulars
16th Jan 2019 for ECB
and 13th March 2019 for
Trade credit
RBI Master Direction
FED Master Direction
No.5/2018-19
RBI FAQs (updated
from time to time)
Other items - Monthly
ECB Data on RBI
Website
CA. Sudha G. Bhushan || Sudha@taxpertpro.com || 9769033172

• FEM( Permissible capital Account Transactions), 2000
• Foreign Exchange Management( Guarantee)Regulations, 2000
• Non-resident guarantee for domestic fund based and non-fund based facilities
• Facility of Credit Enhancement
• Foreign Exchange Management (Deposit) Regulations, 2016 [5R]
(1) A company registered under Companies Act, 2013 or a body corporate created under an Act of Parliament or
State Legislature shall not accept deposits on repatriation basis from a non-resident Indian or a person of Indian
origin. The company may, however, renew the deposits which had been accepted on repatriation basis from an
NRI or a PIO subject to terms and conditions mentioned in Schedule 6.
(2) A company registered under Companies Act, 2013 or a body corporate, a proprietary concern or a firm in
India may accept deposits from a non-resident Indian or a person of Indian origin on non-repatriation basis,
subject to the terms and conditions mentioned in Schedule 7.
Foreign Exchange Management (Borrowing and Lending) Regulations, 2018
• 3
Framework of Lending and Borrowing

Foreign
Exchange
Management
(Borrowing
and Lending
in Foreign
Exchange)
Regulations,
2000
Foreign
Exchange
Management
(Borrowing
and Lending
in Indian
Rupees)
Regulations,
2000
Regulation 21
of FEM
(Transfer or
Issue of any
Foreign
Security)
Regulations,
2004
Foreign Exchange
Management
(Borrowing and
Lending)
Regulations, 2018
4
Investments in Foreign Securities
other than by way of Direct
Investment - FCCBs
Foreign Exchange Management (Borrowing and Lending) Regulations, 2018

ForeignExchangeManagement(BorrowingandLending)Regulations,2018
1. Short Title and Commencement
2. Definitions
3. Prohibition to Borrow or Lend
4. Borrowing from outside India in Foreign Exchange by a Person Resident in India
5. Lending in Foreign Exchange by a Person Resident in India
6. Borrowing in Indian Rupees by a Person Resident in India
7. Lending in Indian Rupees by a Person Resident in India
8. Continuation of loan in the event of change in the residential status of the lender/borrower
9: Any borrowing under erstwhile regulations can be continued as permitted up to the due date of repayment.

Regulation3
no person resident in India
•shall borrow or lend
•in foreign exchange
❖from or to
❖a person resident in or
outside India
no person resident in India
•shall borrow in rupees
from, or lend in rupees to,
❖a person resident
outside India

Regulation4||BorrowinginForeignExchange
Borrowing from
outside India in Foreign
Exchange by a Person
Resident in India
A. Borrowing by an
Authorised Dealer or its
branch outside India
B. Borrowing by
Persons other than
Authorised Dealers
ECB – Schedule I
Trade Credit – Schedule
II

Regulation5||LendinginForeignExchange
Lending in Foreign
Exchange by a Person
Resident in India: -
A. Lending by an
Authorised Dealer in
India or its branch
outside India
B. Lending by
persons other than
Authorised Dealer
Schedule III

Regulation6||BorrowinginIndianRupees
Borrowing in Indian
Rupees by a Person
A. Borrowing by an
Authorised Dealer
Borrowing by
persons other than
Authorised Dealer
ECB – Schedule I
Trade Credit –
Schedule II

Regulation7||LendinginIndianRupeesbyaPersonResidentinIndia
Lending in Indian
Rupees by a Person
Lending by an
Authorised Dealer
Lending by persons
other than
Authorised Dealer

Others
• Regulation 8 : Continuation of loan in the event of change in the residential status of the
lender/borrower
• Regulation 9: Any borrowing under erstwhile regulations can be continued as permitted up to the due
date of repayment.

Earlier Regime || New Regime
12
External
Commercial
Borrowings
TRACK I
Foreign currency
denominated
Minimum
average maturity
of 3 to 5 years.
TRACK II
Foreign currency
denominated
Minimum
average maturity
of 10 years.
TRACK III
Indian Rupee
denominated
Minimum
average maturity
of 3 to 5 years.
Track I and Il of earlier ECB
policy merged with FCY
ECB
Track III and RBD of earlier
ECB policy merged into INR
ECB

ECB/ECLdefinition
Regulation 2(iv) of FEMA 3(R)
• "External Commercial Borrowings (ECB)" means
borrowing by an eligible resident entity from outside
India in accordance with framework decided by the
Reserve Bank in consultation with the Government of
India;
As RBI's Master Direction
• External Commercial Borrowings are commercial loans
raised by eligible resident entities from recognized non-
resident entities and should conform to parameters such
as minimum maturity, permitted and nonpermitted end-
uses, maximum all-in-cost ceiling, etc. The parameters
given below apply in totality and not on a standalone
basis
13
Regulation 2(v) of FEMA 3(R) - "External Commercial Lending (ECL)" means lending by a person resident in India to a
borrower outside India in accordance with framework decided by the Reserve Bank in consultation with the Government
of India;

Conditions forECB
Limits and
Currency
Currency - INR &
Foreign
Exchange
Forms of ECBs
Eligible
Borrower
Recognized
Lenders
MAMP
All-in-cost
ceilings
Other costs
End-use
(Negative List)
Exchange Rate
for conversion
Hedging
provisions
Change in
Currency of
Borrowings
Other conditions

Limits&Currency
Individual limit of borrowing
•ECB up to USD 750 million
or equivalent per financial
year irrespective of the
category of borrower under
automatic route
•Any amount exceeding the
above - Approval Route
Currency
•ECB can be raised in any
freely convertible foreign
currency as well as in Indian
Rupees as stipulated

ECB Routes
Automatic Route
• No approval required
• Obtain LRN from RBI by fling Form ECB
through AD Bank (earlier Form 83 – has been
discontinued)
• Monthly filings with RBI through AD Bank in
Form ECB-2
• Includes entities under Investigation under
FEMA on without prejudice basis
Approval Route
• Prior application to the RBI through AD Bank
(Form ECB)
• Recommendation of RBI Empowered
Committee (Internal RBI & External Members)
for application above certain threshold and
final decision by RBI
• Factors: merits, macroeconomic situations
and overall guidelines
• Post approval, obtain LRN, monthly filings as
under the Automatic Route

•Loans including bank loans
• Floating/ fixed rate notes/bonds/ debentures (other than fully and compulsorily
convertible instruments);
• Trade credits beyond 3 years,
• FCCBS
• FCEBS
• Financial Lease
FCY ECB (Any freely
convertible foreign
currency)
•All instruments listed for FCY ECB
•Plain vanilla Rupee denominated bonds issued overseas,
✓ which can be either placed privately
✓ or listed on exchanges as per host country regulations.
INR ECB
Forms of ECB

19
Eligible Borrower
FDI
• Company
• Partnership/Proprietorship
• Limited Liability Partnerships
• Trust not allowed ( only in case of
AIFs)
• Investment Vehicle
• Start up Companies
Foreign Currency
Denominated
• Port Trusts;
• Units in SEZ;
• SIDBI; and
• EXIM Bank of India.
Rupee Denominated
• Registered entities engaged in micro-
finance activities, viz.,
✓Registered Not for Profit companies,
✓ registered societies
✓Registered Trust
✓cooperatives and
✓Non-Government Organizations.

20
Eligible Borrower||SpecialDispensation
Others
Importer
Start up
Oil marketing company
Distressed company
Untraceable entity
Entity under Investigation

• ECBforentitiesunderrestructuring/refinancingstressedassets
21
•only if specifically permitted under the resolution plan
•An entity which is under a restructuring
scheme/corporate Insolvency resolution
process can raise ECB
• can raise ECB for repayment of such loans under one time settlement with
lenders
Eligible corporate borrower (SMA2/NPA)
in manufacturing/infrastructure sector
who have availed INR loan for capital
expenditure
•Lenders Bank allowed to sell such Loans to ECB Lenders subject to ECB
policy (sell to be other than Indian B/Sub of Indian Banks)
• Special provisions for Lender Banks
•under IBC 2016 as resolution applicants Elgible Borrowers can raise ECB
from all recognised lenders, except foreign branches/subsidiaries of Indian
banks, for repayment of Rupee term loans of the target company
• Approval Route for Eligible borrowers
participating in the Corporate Insolvency
Resolution Process

UntraceableEntity
22
New concept
• Action plan to be undertaken by the AD Banks and
RBI against untraceable entities in contravention of
reporting provisions under the
• New ECR Framework, for eight quarters or more
Stricter compliance requirements in relation to
ineligibility for untraceable entities
Untraceable Entities: Any borrower who has raised
ECB will be treated as 'untraceable entity, if:
• Entity/auditor(s)/directors/promoter(s) of entity are
not reachable/reply in negative for a period of not
less than two quarters with documented
communication/reminders numbering 6 or more; and
it fulfills both the following conditions:
a) Entity not found to be operative at the registered
office during the visits by the officials; and
b) Entities have not submitted Statutory Auditor's
Certificate for last two years or more
Action: The followings actions are to be undertaken in respect of 'untraceable entities':
- File Revised Form ECB, if required, and last Form ECB 2 Return without certification from company with
"UNTRACEABLE ENTITY' written in bold an top. The outstanding amount will be treated as written-off from
external debt liability of the country
- No fresh ECB application by the entity should be examined/processed by the AD bank;
- ED to be informed whenever any entity is designated 'UNTRACEABLE ENTITY', and
- Na inward remittance or debt servicing will be permitted under auto route.

RecognisedLenders
The lender
should be
resident of FATF
or IOSCO
compliant
country,
Additionally, the
following are also
recognised lenders:
Multilateral and
Regional Financial
Institutions
where India is a
member country
Individuals
if they are foreign
equity holders
or for subscription to
bonds / debentures
listed abroad; and
Foreign branches /
subsidiaries of Indian
banks
only for FCY ECB
(except FCCBs and
FCEBS)
FATF compliant country: A country that is a
member of the Financial Action Task Force
(FATF) or a member of a FATF-Style Regional
Body; and 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 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.

100%
70% Outside India
India
F Co. 3
I Co. 1
F Co. 1
Foreign Equity Holder: It means
(a) direct foreign equity holder with minimum 25% direct equity
holding in the borrowing entity,
(b) indirect equity holder with minimum indirect equity holding of
51%, or
(c) group company with common overseas parent.
RecognisedLenders||ForeignEquityHolder

26
B Ltd A Ltd A Ltd
100% 100%
Outside India 100% 100% 100%
India B Ltd C Ltd
D Ltd
Outside India
India
D Ltd
ECB from B Ltd - considered as
ECB from Foreign equity holder
as A Ltd being group company
with common overseas parent
ECB from B Ltd - Whether will be
considered as ECB from Foreign
equity holder being Common
Ultimate parent?

A foreign equity holder holding minimum 25% direct equity holding in the borrowing entity or minimum indirect
equity holding of 51% in the borrowing entity is a recognised lender.
Can the foreign equity holder dispose-off the holding once ECB is contracted?

A foreign equity holder holding minimum 25% direct equity holding in the borrowing entity or minimum indirect
equity holding of 51% in the borrowing entity is a recognised lender.
Can the foreign equity holder dispose-off the holding once ECB is contracted?
No, all ECB guidelines including those related to minimum equity holding, are to be fulfilled during the whole tenure
of the ECB and not only at the time of contracting of ECB.

• Whose responsibility is it to ensure compliance with ECB guidelines?

Add a footer 30
ECBLiability:EquityRatio
Conditions
•in case of FCY denominated ECB raised from
direct foreign equity holder ECB liability-equity
ratio for ECBs raised under the automatic route
cannot exceed 7:1.
•Not applicable - if outstanding amount of all
ECBs, including proposed one, is up to USD 5
million or equivalent.
•Further, the borrowing entities will also be
governed by the guidelines on debt equity ratio
issued, if any, by the sectoral or prudential
regulator concerned.
calculation
•ECB liability-equity ratio = 7:1
✓Wherein,
✓ECB = All ECBs raised in the financial year
including the proposed one apart from ECB
raised for refinancing
✓Equity = Paid-up capital plus free reserves
(incl. proportionate share premium received
in Foreign Currency as per latest audited
balance sheet.

31
Conditions
• in case of FCY denominated ECB raised from direct
foreign equity holder ECB liability-equity ratio for ECBs
raised under the automatic route cannot exceed 7:1.
• Not applicable - if outstanding amount of all ECBs,
including proposed one, is up to USD 5 million or
equivalent.
• Further, the borrowing entities will also be governed by
the guidelines on debt equity ratio issued, if any, by the
sectoral or prudential regulator concerned.
calculation
• ECB amount will include all outstanding amount of all
ECBs (other than INR denominated) and the proposed
one (only outstanding ECB amounts in case of
refinancing)
• while equity will include the paid-up capital and free
reserves (including the share premium received in
foreign currency) as per the latest audited balance sheet.
• Both ECB and equity amounts will be calculated with
respect to the foreign equity holder.
• Where there are more than one foreign equity holders 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.
• The ratio will be calculated as per latest audited balance
sheet.

• Ratio does not apply to INR ECB and INR ECB to be excluded from denominator as well for computing the Ratio
• Ratio does not apply if ECB to be raised from Indirect Foreign Equity Holder & and Group Company with common
overseas Parent
32

Should the proposed ECB be added to all outstanding ECBs for the purpose of ECB liability to equity ratio?
• Yes, apart from ECB raised for refinancing where the proposed ECB amount may not be taken into account to
avoid double counting.
Does the equity in “ECB liability to Equity ratio” include non-convertible preference capital?
• No.
Should the proposed ECB be added to all outstanding ECBs for arriving at the individual limit for raising of ECBs?
The individual limit for raising ECB under the automatic route will take into account all ECBs raised in the financial year
including the proposed one. However, refinancing of ECB amount will not be considered for arriving at individual limit
per financial year. Also, the limit will be restored at the beginning of new financial year.
33

Is the debit balance in the profit and loss account for losses incurred by the Eligible Borrower, if any, required to be
deducted from the free reserve while calculating the ECB liability-equity ratio?
• Yes. Any debit balance in the profit and loss account as per the latest audited balance sheet of the Eligible
Borrower should be deducted from the equity for computing the ECB liability-equity ratio.
Can an eligible borrower simultaneously raise both Foreign Currency and INR denominated ECBs?
• Yes, as long as the ECBs are in compliance with the ECB guidelines for the respective currencies as per RBI
guidelines. The individual limit will include all ECBs raised, whether in foreign currency or INR.

• Whose responsibility is it to ensure compliance with ECB guidelines?
• The primary responsibility for ensuring that the borrowing is in compliance with the applicable ECB guidelines is
that of the borrower concerned. Structures which bypass/ circumvent ECB guidelines in any manner and / or raising
borrowings in any other manner which is not permitted / disguising borrowing under the wrap of other kind of
transactions and / or contravening provisions of Foreign Exchange Management (Borrowing and Lending in
Foreign Exchange) Regulations, 2018 would also invite penal action under FEMA.

MinimumAverageMaturityPeriod('MAMP)
Sr Category MAMP
a) ECB raised by manufacturing companies up to USD 50 million or its equivalent per FY 1 YEAR
b) ECB raised from foreign equity holder for (i) working capital purposes, general corporate
purposes; or (ii) for repayment of Rupees loans
5 YEAR
c) ECB raised for (l) working capital purposes or general corporate purposes; or (onlending by
NBFCs for working capital purposes or general corporate purposes
10 YEAR
d) ECB raised for (l) Repayment of Rupees loans availed domestically for their same purposes 7 YEAR
e) ECB raised for (l) Repayment of Rupees loans availed domestically for purposes other than
capital expenditure; (ii)on-lending by NBFCs for the same purpose
10 YEAR
MAMP for ECB is 3 years (including any put and call option to be only thereafter)
except for specified categories mentioned below for which separate MAMP Is prescribed.
For categories mentioned at (b) to (e) - 1) ECB cannot be raised from foreign branches / subsidiaries of
Indian banks:
- the prescribed MAMP will have to be strictly complied with under all circumstances.

• In case of an ECB raised from foreign equity holder and utilized for general corporate purpose/working
capital/repayment of Rupee loans, can repayment of principal of ECB start before the completion of 5 years?

• In case of an ECB raised from foreign equity holder and utilized for general corporate purpose/working
capital/repayment of Rupee loans, can repayment of principal of ECB start before the completion of 5 years?
• Yes, however, the ECB should have minimum average maturity period of 5 years.

39
Loan Amount = USD 2 Million CHART 1
Date of Drawal/
Repayment (MM/DD/YY)
Drawal Repayment Balance No of Days***
Balance with the
Borrower
Product=
Col4*Col5/(Loan
amount* 360)
Col 1 Col 2 Col 3 Col 4 Col 5 Col 6
5/11/2017 0.75 0.75 24 0.025
6/5/2017 0.5 1.25 85 0.1476
8/31/2017 0.75 2 477 1.325
12/27/2018 0.2 1.8 180 0.45
6/27/2019 0.25 1.55 180 0.3875
12/27/2019 0.25 1.3 180 0.325
6/27/2020 0.3 1 180 0.25
12/27/2020 0.25 0.75 180 0.1875
6/27/2021 0.25 0.5 180 0.125
12/27/2021 0.25 0.25 180 0.0625
6/27/2022 0.25 0 180
Average Maturity= 3.2851
***Calculated by using the formula = (First Date , Second Date, 360)

Post 2 years, F Co. acquires 70% holding in I Co. and has
become foreign equity holder (Direct)
I Co. raises an ECB of USD 100 million for working capital
purpose for MAMP of 10 years
F Co. and I Co. are not related
F Co. is an eligible lender and I Co. is an eligible borrower
After 2 years
Loan Taken Acquire
USD 100mn 70%
Outside India
India
Whether the prescribed MAMP can be reduced to 5
years post acquisition?
F Co.
I Co.
F Co.
I Co.
MinimumAverageMaturityPeriod('MAMP)||Example

• F Co. is an eligible lender and I Co. is an eligible
borrower
• I Co is not able to comply with its original
repayment schedule and interest obligations
• Loan USD 50 million Interest due on ECB USD 1
million
• Outside India
• F Co. wants to convert the loan along with interest
into equity before MAMP of say 3 years
✓ a) Whether conversion into equity before MAMP
is permissible?
✓ b) If I Co. wants to write off the interest amount,
is it permissible?
F Co.
• Loan USD 50 Million
• Interest due on ECB USD
• 1 million
• Outside India
• India
I Co.
25

F Co. is an eligible lender and I
Co. is an eligible borrower
Under the erstwhile FEMA
regulations, i Co. raises an
ECB of USD 100 million for
MAMP of 5 years
Under the new ECB framework,
the MAMP for the above
purpose is reduced from 5
years to 3 years
Loan Taken MAMP
5 Year Outside India
India
Whether MAMP can be revised to 3
years?
F Co.
I Co.

Regulation 2(xiv) -
FEMA 3R
"Restricted End Uses" shall mean end uses where borrowed funds cannot be deployed and
shall include the following:
a) In the business of chit fund or Nidhi Company;
b) Investment in capital market including margin trading and derivatives;
c) Agricultural or plantation activities;
d) Real estate activity or construction of farm houses, and
e) Trading in Transferrable Development Rights (TDR), where TDR shall have the meaning as
assigned to it in the Foreign Exchange Management (Permissible Capital Account
Transactions) Regulations, 2015.
EndUseRestriction||Regulations2018

The negative list, for which the ECB proceeds cannot be utilised, would include the following:
(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.
EndUse||MasterDirection

WorkingcapitalpurposesandGeneralCorporatePurposes
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) –
(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.

Is the reimbursement of expenditure incurred in the past a permissible end-use under the ECB framework?
• This is not a permissible end-use under the ECB framework.
Can ECB be availed of for making equity investment domestically or buying goodwill?
• No. Equity investment either directly or indirectly (through purchase of goodwill) is not permitted.
Can ECB be availed of for making contribution in an LLP?
• No, it is not permitted.
Can ECB proceeds be used by eligible resident borrowers for investment in their overseas JV/WOS as per the extant
overseas investment guidelines?
• Yes. ECB proceeds can be utilized for overseas investment as permitted under the overseas investment guidelines.

Is on-lending treated as working capital for borrowers who are engaged in the business of on lending?
For the purpose of ECB, on-lending by borrowers who are engaged in the business of on-lending is not treated as
working capital. Additionally, the borrowers shall need to adhere to the guidelines issued by the concerned sectorial
or prudential regulator in this regard.
Can the housing finance companies raise ECB for on-lending to individual borrowers exclusively for flats/units in the
affordable housing projects as defined in Harmonized Master List of Infrastructure Sub-sectors notified by
Government of India?
Yes.

Allincostceiling
Allincost
Includes
rate of interest,
other fees, expenses,
charges,
guarantee fees, ECA
charges, whether paid in
foreign currency or INR
Exclude
commitment fees and
withholding tax payable in
INR.
Non recourse to the
drawdown of ECB/TC
Prepayment charge/ Penal
interest, if any, for default or
breach of covenants, should
not be more than 2 per cent
over and above the
contracted rate of interest
on the outstanding principal
amount and will be outside
the all in-cost ceiling.
Benchmark rate plus 450 bps spread

Benchmark rate
in case of FCY ECB/TC
6-months LIBOR rate of
different currencies or any
other 6-month interbank
interest rate applicable to the
currency of borrowing, for
eg., EURIBOR.
in case of Rupee denominated
ECB/TC
prevailing yield of the
Government of India
securities of corresponding
maturity.
Allincostceiling

Others
In the case of fixed rate loans,
the swap cost plus spread should not
be more than the floating rate plus the
applicable spread.
For FCCBs, the issue related
expenses should not exceed 4 per cent
of the issue size and in case of private
placement, these expenses should not
exceed 2 per cent of the issue size, etc.
Under TC Framework, all-in-cost
shall include rate of interest, other fees,
expenses, charges, guarantee fees
whether paid in foreign currency or INR.
Allincostceiling

Does all-in-cost ceiling apply on a continuous basis or can it be calculated even on an average basis?
• All-in-cost should be within the applicable ceiling at all times, e.g., breach of all-in-cost ceiling in the first year and a
much lower all-in-cost in the second year so as to comply on an average, is not permitted.
Can interest during construction stage be paid out of ECB borrowings?
• The definition of all-in-cost prohibiting use of ECB proceeds for payment of interest/charges is not applicable to
ECBs raised for project finance and utilised for payment of guarantee fees (like ECA Premium) and interest during
construction, provided the said components are part of project cost and capitalised by the borrower.
Allincostceiling

Parking of ECB proceeds
abroad:
•ECB proceeds meant only for foreign currency expenditure can be parked abroad
pending utilization.
•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.
Parking of ECB proceeds
domestically:
•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.
Add a footer 52
ECB-ParkingofECBproceeds

Can fixed deposits created out of ECB proceeds, pending utilization, be renewed after completion of maximum
permitted period?
• No.
53
ECB-ParkingofECBproceeds

Conversion
Change of currency of borrowing Change of currency of ECB from one
freely convertible foreign currency to
any other freely convertible foreign
currency as well as to INR is freely
permitted.
Change of currency from INR to any
freely convertible foreign currency is
not permitted.
54
ECB from one convertible foreign currency to any other convertible foreign currency as well as to INR is freely
permitted (at an exchange rate prevailing on the date of agreement or less than that rate with consent of ECB
Lender).
Change of currency from INR to any foreign currency is, however, not permitted.
For INR ECB, for conversion to Rupee, the exchange rate shall be the rate prevailing on the date of settlement

Conditions Outstanding maturity of the original borrowing (weighted outstanding maturity in
case of multiple borrowings) is not reduced
all-in-cost of fresh ECB is lower than the all-in-cost (weighted average cost in case
of multiple borrowings) of existing ECB.
ECBs raised
under the
previous ECB
framework
Further, refinancing of ECBs raised under the previous ECB framework may also be
permitted, subject to additionally ensuring that the borrower is eligible to raise
ECB under the extant framework.
to part
refinance
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.
RBI FAQs No.26 –
Refinancing of INR
ECB with FCY ECB is
not permitted
Refinancing

56
F Co. is an eligible lender and I Co. is an
eligible 1 borrower
In Year 1, 1 Co. raised ECB of USD 60
million.
In Year 2, 1 Co. raised ECB of USD 740
millions
In Year 2, 1 Co. proposes to refinance its
earlier ECB raised in Year 1 of USD 60
millions
Refinancing&Conversion

immovable
assets,
movable assets,
financial
securities, and
issue of
corporate and/
or personal
guarantees
Add a footer 57
Securityandconversionofcharges
The creation of security to
be co-terminus with
underlying ECB subject to
security clause in Loan
Agreement and NOC from
Indian Lenders

Creation of Charge on Movable Assets
In case of enforcement / invocation of charge, the claim of the lender will be
restricted to outstanding claim against ECB. (NOC from Indian lenders for
moving encumbered movable assets outside India)Creation of Charge on Immovable Property
• Security shall be subject to FEMA (Acquisition
and Transfer of Immovable Property in India) Regulation
2000;
• Permission should not be construed as
permission to acquire immovable property by overseas
lender / security trustee;
• In case of enforcement / invocation property
should be sold to person resident in India and proceeds
shall be repatriated to liquidate the outstanding ECB
Creation of Charges over Financial securities:
Below arrangements are permitted:
• Pledge of shares of the borrowing company held
by the promoters as well as in domestic associate companies of the
borrower
Pledge on other financial securities, viz. bonds and debentures,
mutual funds etc. in the name of ECB borrower / promoter
• Security interest over all current and future loan assets and all
current assets of the borrower
• In case of invocation of pledge, transfer as per
extant FDI / RFPI Policy / NDI Rules
27
Securityandconversionofcharges

Reporting Requirements
Form ECB:
Borrower is required to submit Form ECB in duplicate with AD Bank.
AD Bank will forward one copy to the Director, Balance of payments statistics division, Department of
Statistics and Information Management, RBI.
Loan Registration Number:
Any draw-down in respect of ECB as well as payment of any fee / charges for ECB should happen only after
obtaining LRN from RBI.
Changes in terms and conditions of ECB: -
Revised Form ECB should be submitted with DSIM within 7 days of such changes
Monthly filings:
Borrower to submit Form ECB-2 on monthly basis with AD Bank so as to reach to DSIM within 7 days from
the close of the month. All filings up to date for past ECB / FCCB before new ECB / FCCB, etc.
It requires compliance certificate from CS / CA apart from that of AD-Bank.
29

ReportingonConversionofECBintoequity
Partial Conversion -
•Converted portion
to be reported in
Form FC-GPR
•appropriately
reported in monthly
Form ECB2 - "ECB
Partially converted
into Equity“
Full Conversion -
• Entire portion to be
reported in Form FC-
GPR and
appropriately
reported in monthly
•Form ECB2 - "ECB
fully converted into
Equity
• For conversion of
ECB into equity in
phases,
•FC GPR
•Reporting through
ECB 2 Return will
also be in phases.

Delay in reporting of drawdown of ECB proceeds before obtaining LRN or
delay in submission of Form ECB 2 returns can be regularized by
payment of LSF as under:Sr No. Type of Return / Form Period of delay Applicable LSF
1 Form ECB 2 Up to 30 calendar days from due date
of submission
INR 5,000
2 Form ECB 2/ Form ECB Up to three years from due date of
submission / date of drawdown
INR 50,000 per
year
3 Form ECB 2/Form ECB Beyond three years from due date of
submission / date of drawdown
INR 100,000 per
year
• LSF allows regularizing reporting delays without having to go to RBI for compounding (RBI FAQ 40 - applies to Nil returns)
• Non-payment of LSF treated as a contravention of reporting provision and subject to compounding or adjudication as
provided in FEMA.
Form ECB and Form ECB 2 reporting contraventions treated separately.
• RBI FAQ No. 39 - LSF applicable to ECB2 submitted from February 2019 and onwards (re January 19 transactions).
30
LateSubmissionfees

LateSubmissionfees

Add a footer 63
LateSubmissionfees

1.Change / Modification in Drawdown/
Repayment Schedule it.
7.Prepayment of ECB (provided MAMP is
maintained)
2.Change in Currency of Borrowing 8.Cancellation of LRN (only if no draw-down)
Change in AD Bank (subject to no objection
certificate from earlier AD Bank)
9.Change in End-use (only for Automatic Route)
3.Change in name of borrower Company 10.Change in all-in-costs
4.Transfer of ECB (on re-organization at the
borrower level - merger/demerger/ acquisition as per law)
11.Reduction in amount of ECB.
5.Change in Recognised Lender. 12.Refinancing of existing ECB (provided the fresh ECB
is raised at a lower all-in-cost and residual maturity is not reduced)
6.Change in name of Lender 13.Extension of matured but unpaid ECB (subject to
conditions)
While permitting changes, AD Bank should ensure –
• Revised average maturity/all-in-cost are in conformity with applicable guidelines
• RBI DBR Prudential guidelines complied for credit facilities from Indian Banks or their Overseas Branches/Subs.
• ECB continues to be in compliance with applicable guidelines.
• Changes to be communicated in Form ECB / ECB-2 within 7 days of the changes being effected.
32
PowerdelegatedtoADBanks

TradeCredits
65
Trade credits refer to credits extended directly by the overseas supplier, bank, financial institutions and other permitted
recognised lenders for imports of capital/non-capital goods. Trade credit includes Suppliers credit (Overseas Supplier himsell)
& Buyers credit (By Overseas Banks & Financial Institutions, Foreign equity
holder(s) & Financial Institutions in IFSCs located in India)
Automatic Route - AD Bank is permitted to approve TC:
a. Up to USD 150 mn or equivalent per import transaction for oil / gas refining & marketing, airline &
shipping cos.
b. Up to USD 50 mn or equivalent per import transaction for others
Approval Route - TC for import of capital and nan-capital goods beyond limit specified in automatic route
Maturity Prescription (with no roll / extension beyond
the permitted period)
• Import of non-capital goods - Up to 1 year from
the date of shipment or operating cycle whichever is less.
• Import of capital goods - Up to 3 years from date
af shipment.
Reporting- Monthly reporting in Form TC by AD
Category 1 Banks (not later than 107 of the following
month)/Quarterly reporting - Issuance af Bank
Guarantees.
• All in costs: up to 250 basis points + 6 months
LIBOR. Includes rate of interest, other fee, expense, charges,
guarantee fee whether in FCY or INR
AD Banics permitted to issue Guarantee in favor of overseas
supplier, bank or financial institution not exceeding the amount
af TC and the period cannot exceed the maximum permissible
period for TC.
• Importer can also offer security of mavable assets
/ Immovable property / corporate or personal guarantee subject
to conditions

Trade Credits - SEZ/FTWZ/ DTA
66
Trade Credits scheme for SEZ/FTWZ/DTA
• TC can be raised by unit or developer in SEZ including FTWZ for purchase of capital/non-capital goods within SEZ
including FTWZ or different SEZ including FTWZ
• DTA unit is also allowed to raise Trade Credit for purchase of capital /non-capital goods from a unit ora Developer
of SEZ including FTWZ
.
• All other conditions af Trade Credit apply to afaresaid Trade Credits as well

Thanks
CA.SudhaG.Bhushan
9769033172||sudhag999@gmail.com
67

External Commercial Borrowing by CA. Sudha G. Bhushan

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