External Commercial Borrowing (ECB) Reporting Requirements

Ankita Tiwari

23 May, 2024

External Commercial Borrowings (ECB) are loans, borrowing or debt made by foreign lenders to Indian borrowers. In ECB, Indian borrowers avail of loans from foreign sources. ECB is used to finance a number of things such as the expansion of business, acquisition of assets, repayment of existing debt, etc. ECB can be obtained from sources like foreign banks, international financial institutions, foreign subsidiaries of Indian companies, etc. ECB can be in the form of bank loans, buyer’s credit, supplier’s credit, floating-rate notes, fixed-rate bonds, etc. ECB can be used for fresh investments or expansion purposes. In India, the Reserve Bank of India (RBI) regulates the ECB. Over the years RBI has reduced restrictions on eligible borrowers and lenders and has granted several benefits for availing ECB such as lower interest rates and greater access to the global market.

Entry Routes for External Commercial Borrowings (ECB)

There are two routes to make ECB in India:

1. Automatic Route: In the automatic route, no government approval is required for ECB and it can be made through Authorized Dealers, AD Category-I Banks;
2. Approval Route: Under the approval route, the prospective borrower should apply to RBI through AD Category-I bank for examination of the proposal for ECB.

Negative List of ECB

ECB cannot be used for the following purposes:

1. Real estate
2. Capital market investments
3. Equity investment
4. Working capital purposes unless it is from foreign equity holder.
5. General Corporate purposes unless it is from foreign equity holder.
6. Repayment of Rupee loan unless it is from foreign equity holder.
7. On-lending to entities for any of the above activities.

External Commercial Borrowings (ECB) Framework

External Commercial Borrowings (ECB) is governed under:

1. The Foreign Exchange Management Act, 1999
2. Guidelines issued by RBI from time to time

Reporting Requirements of External Commercial Borrowings (ECB)

For reporting ECB, Form ECB has to be submitted by the borrower to the AD Bank in duplicate. The AD Bank then forwards one copy to the Director of the balance of payments statistics division, Department of Statistics and Information Management (DSIM), RBI. Any payment of fee or charge or any drawdown for ECB happens only after obtaining LRN from RBI. If any revision is made in Form ECB, it should be intimated to the DSIM within 7 days from the date of such revision. A monthly filing has to be submitted in Form ECB-2 updating details of past ECB/FCCB before new ECB or FCCB, etc. The monthly filings should be accompanied by a compliance certificate from CS or CA in addition to that of AD-Bank. A detailed discussion of the reporting requirements of ECB is done below in a tabular form:

Other Reporting Requirements of External Commercial Borrowings (ECB)

What is the Penalty that can be imposed for the delay in reporting External Commercial Borrowings?

If there is any delay in reporting the ECB proceeds or delay in submitting Form ECB-2 returns, then it can be regularized by paying Late Submission Fee (LSF) as provided below:

The reporting contraventions of Form ECB and Form ECB-2 are treated differently. Payment of LSF allows the borrowers who are otherwise in compliance with the reporting requirement to regularize the delays without having to undergo the process of compounding contraventions before RBI. However, non-payment of LSF will be treated as a contravention of reporting requirement provision and then it shall be subject to compounding or adjudication process under FEMA.

Conclusion

In conclusion, it can be said that the reporting requirements of the External Commercial Borrowings make it easier for the regulating authority to keep a track of the External Commercial Borrowings, to ensure that the lender is recognized, and to ensure that the External Commercial Borrowings is not being used for purposes falling under the negative list. These reporting requirements are simple and easy. In addition, the LSF provision ensures that delays in reporting requirements do not unnecessarily have to undergo the compounding process.

Read our Article:RBI External Commercial Borrowings (ECB) Framework, 2022