Notes on External Commercial Borrowings (ECB)-Automatic Route

• International Banks
• International capital markets
• Multinational financial institutions
• Export credit agencies
• Suppliers of equipments
• Foreign collaborators
• Foreign equity holders

A ‘foreign equity holder’ to be eligible as ‘recognized lender’ under automatic route would require minimum holding of paid up equity in the borrower company as set out below:

(i) For ECB up to USD 5 million – minimum paid up equity of 25 per cent held directly by lender; and

(ii) For ECB more than USD 5 million –minimum paid up equity of 25 % held directly by the lender and debit –equity ratio not exceeding 4:1 (i.e. the proposed ECB not exceeding four times the direct foreign equity holding).

Maximum permissible amount

• Corporates other than hotels, hospitals and software sectors – maximum USD 500 million or its equivalent during a financial year.
• Corporates in service sector viz. hotels, hospitals, and software sectors – maximum USD 100 million or its equivalent during a financial year. The proceeds of the ECBs however should not be used for acquisition of land.

NGO engaged in micro finance activities- maximum USD 5 million or its equivalent during a financial year.

Maturity:

• Up to USD 20 million or its equivalent in a financial year – minimum average maturity 3 years

• Above USD 20 million up to USD 500 million or its equivalent - minimum average maturity 5 years

Up to USD 20 million or its equivalent can have call / put option provided the minimum average maturity of 3 years has to be complied with before exercising call/ put option

End use of ECB

ECB can be raised only for

• Investment (such as import of capital goods)
• New projects in the real estate sector
• Industrial Sectors including small and medium enterprises
• Infrastructure Sectors

(i) power
(ii) telecommunications
(iii) railways
(iv) road including bridges
(v) sea port and airport
(vi) industrial parks,
(vii) urban infrastructure (water supply, sanitation and sewage projects and
(viii) mining, refining and exploration

• Specific service sectors namely hotel, hospital and software
• Overseas direct investment in JV / Wholly Owned Subsidiaries subject to existing guidelines
• For first stage acquisition of shares in disinvestment process and also in mandatory second stage offer to the public under the Government’s disinvestment programme of PSU shares
• Payment for obtaining license / permit for 3G Spectrum
• For lending to self-help groups or for micro-credit or for bonafide micro finance activity including capacity building by NGOs engaged in micro finance activities.

End-uses not permitted

• For on-lending or investment in capital market or acquiring a company (or a part thereof) in India by a corporate

• In real estate sector except as provided

For working capital, general corporate purpose and repayment of existing rupees loan

Procedure :

• Borrowers may enter into a loan agreement with recognized lender under Automatic Route

• Borrowers must obtain a Loan Registration Number (LRN) from RBI before drawing down ECB

• Procedure for obtaining LRN

- Borrowers are required to submit Form 83 in duplicate certified by Company Secretary or Chartered Accountant to the designated AD Bank. (copies of loan agreement is not required to be submitted with the form)

ECB-2 return

• Borrowers are required to submit ECB – 2 return certified by 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

Conversion of ECB into equity

Conversion of equity is permitted subject to the following :

- activities of the company is covered under the Automatic Route for FDI or Government approval for foreign equity participation has been obtained by the Company, wherever applicable

- Foreign equity holding after such conversion of debit into equity is within sectoral cap, if any

- Pricing of shares is as per the SEBI and erstwhile CCI guidelines / regulations in case of a listed / unlisted companies as the case may be

Reporting to RBI may be done in following manner:

By way of filing form FC-GPR to regional office concerned as well as in form ECB-2, submitted to DSIM, RBI within seven working days.





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