ecb norms

External Commercial Borrowing (ECB) Reporting Requirements

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)^[1] 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:

Particulars	Form	To whom the document is submitted	Reporting Period	Remarks
Allotment of LRN for both automatic and approval route	Form 83	Designated AD Bank	The loan amount can be drawn only after obtaining LRN	Automatic Route: As per the ECB guidelines, the borrower has to enter into a loan agreement with the lender. Approval Route: The borrower must obtain LRN from RBI before drawing ECB.
Monthly Return	Form ECB	The Chief General Manager-in-charge, Foreign Exchange Department, RBI, Central Office, ECB Division, Mumbai via designated AD bank.	Within 7(seven) days from the end of the month to which it relates.
Applying for ECB under Approval Route	Form ECB	The Chief General Manager-in-charge, Foreign Exchange Department, RBI, Central Office, ECB Division, Mumbai via designated AD bank.
Full Conversion of ECB into equity	Form FC-GPR	RBI Regional Office	Within 7(seven) days from the end of the month to which it relates.	At the top of Form ECB-2, the words “ECB Wholly Converted to Equity” should be indicated.
Partial conversion of ECB into equity	Form FC-GPR for conversion of shares. Form ECB-2 for remaining ECB.	DISM, RBI		At the top of Form ECB-2, the words, ECB Partially converted to Equity” should be indicated.
Change or modification in the draw-down or repayment schedule	Form 83	To the DSIM, RBI through designated AD Bank	Prior Approval from AD Bank	The average maturity period as declared at the time of obtaining the LRN should be maintained.
Change in borrowing currency				The proposed currency of borrowing should be freely convertible.
Change in AD Bank				No Objection Certificate (NOC) should be obtained by the existing AD Bank.

Other Reporting Requirements of External Commercial Borrowings (ECB)

Particulars	Remarks
Change in the name of the Borrower Company	It can be done after producing supporting documents evidencing the change in the name in the ROC.
Change in the recognized lender	It can be done after the Authorized Dealer ensures that the new lender is a recognized lender as per the ECB norms.
Cancellation of LRN	It can be done after the Authorized dealer ensures that the drawdown of LRN has taken place.
Change in the end use of proceeds from ECB	It can be done after the Authorized dealer ensures that the proposed end use is allowed under the Automatic route under the extant ECB guidelines.
Reduction in ECB Amount	It can be done after obtaining consent from the lender for a reduction in the loan amount.
Reduction in all-in-cost of ECB	It can be done after ensuring that consent from the lender has been obtained.

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:

Form	Delay Period	Late submission fee as applicable
Form ECB 2	Delay of maximum of 30 days from the due date of submission	Rs. 5,000/-
Form ECB 2/ Form ECB	Delay of maximum of 3 years from the due date of submission/date of drawdown	Rs. 50,000/- per year.
Form ECB 2/ Form ECB	Delay of more than 3 years from the due date of submission/ due date of drawdown	Rs. 1,00,000/- per year.

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