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FDI as debt or preference shares can be raised under ECB norms & External Commercial Borrowing in India is highly regulated.
External Commercial Borrowing is nothing but money borrowed from a foreign source or foreign institutions. Such money borrowed from abroad shall be utilized for commercial activities.
As defined, External Commercial Borrowings (ECB) refer to commercial loans [in the form of bank loans, buyers’ credit, suppliers’ credit, securitized instruments (e.g. floating rate notes and fixed rate bonds)] availed from non-resident lenders with a minimum average maturity of 3 years. RBI has laid down guidelines to deal with External Commercial Borrowing.
Followings are the entities allowed to raise money through ECB:
Maximum corporate can raise USD 500 million or equivalent during a financial year.
ECB raised up for foreign currency expenditure for allowable end-uses shall not be remitted to India and shall be parked overseas.
ECB proceeds which are parked out of the country can be invested in the following liquid assets:
Prepayment of ECB up to USD 500 million may be allowed by AD banks without prior approval of RBI subject to compliance with the stipulated minimum average maturity period as applicable to the loan.
To provide greater transparency, information with regard to the name of the borrower, amount, purpose, and maturity of ECB under both Automatic Route and Approval Route are put on the Reserve Bank website on a monthly basis with a lag of one month to which it relates.
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