External commercial borrowings

The RBI has delegated powers to banks to approve requests from borrowers for extension of matured but unpaid external commercial borrowing (ECB). Banks can approve requests from borrowers for changes in repayment schedule during the tenure of the ECB. Banks can also approve cases of conversion of matured but unpaid ECB into equity. Indian companies can access funds from abroad through the ECB route.

ECBs refer to commercial loans in the form of bank loans, buyers’ credit, suppliers’ credit, securitised instruments. Examples in this category include floating rate notes and fixed rate bonds, non-convertible, optionally convertible or partially convertible preference shares. They are all availed of from non-resident lenders with a minimum average maturity of three years.

Access of funds under automatic route does not require RBI/GOI approval. Corporates, including hotel, hospital, software sectors (registered under the Companies Act 1956) and infrastructure finance companies except financial intermediaries such as banks, FIs, HFCs, and NBFCs are eligible to raise ECB. Units in SEZs are allowed to raise ECB for captive requirements. NGOs engaged in micro finance are eligible to avail of ECB. Trusts and non-profit making organisations are not eligible to raise ECB.

ECB can be raised by borrowers from internationally recognized sources such as (i) international banks, (ii) international capital markets, (iii) multilateral financial institutions (such as IFC, ADB, CDC, etc)/ regional financial institutions and government owned development financial institutions, (iv) export credit agencies; (v) Suppliers of Equipments, (vi) Foreign Collaborators and (vii) Foreign Equity Holders (other than erstwhile Overseas Corporate Bodies). Overseas organizations and individuals may provide ECB to NGOs engaged in micro finance activities subject to complying with some safeguards outlined in the RBI circular.

Borrowers are permitted to either park the ECB proceeds abroad or to remit these funds to India. ECB proceeds parked in various liquid assets as per regulation can be invested in Treasury Bills and other monetary instruments of one year maturity and having minimum rating etc. The funds may be invested in such a way that the investments can be liquidated as and when funds are required by the borrower in India.

Eligible borrowers under the automatic route other than corporate in the services sector viz., hotel, hospital and software can avail of ECB beyond $750 or equivalent per financial year. Corporate in the service sector can avail beyond ECB 200 million for permissible end-uses.