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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:
ECB cannot be used for the following purposes:
External Commercial Borrowings (ECB) is governed under:
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:
To whom the document is submitted
Allotment of LRN for both automatic and approval route
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.
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
Full Conversion of ECB into equity
RBI Regional Office
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.
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
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.
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.
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
Ankita is an Advocate and has joined Enterslice as a Legal Researcher. Her work focuses on General Civil and Commercial laws, Corporate Taxation Laws, Labour and Employment Laws and Dispute Resolution. She is a law graduate from School of Law, University of Petroleum and Energy Studies. Prior to joining Enterslice, Ankita has the experience of practicing law in Delhi and Odisha.
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