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For the betterment of ease of doing business in India, RBI has revised the “External Commercial Borrowing Norms (ECB Norms)”.The ECBs are bifurcated into two; by merging the track I & track II to form FCY denominated ECB and merging the track III and rupee-denominated bonds to form INR denominated ECB. The Reserve Bank of India has announced the latest norms on 16th January 2019; to expand the horizon of borrowers by letting all the entities, eligible for “Foreign Direct Investment” to borrow via External Commercial Borrowing (ECB). Further, we will take a look at the highlights of ECB norms announced by RBI.
Table of Contents
We have divided the Revised ECB norms into majorly 8 highlights for your better understanding. Let’s take a look; what are the changes incorporated in the ECB norms.
2. First, is the FCY denominated ECB which is formed by merging the Track I & Track II
3. And second is the INR Denominated ECB which is formed by merging Track III and Rupee Denominated Bonds (Masala Bonds).
“FCY- Foreign Currency”
“ECB- External Commercial Borrowing”
The main purpose of all these modifications is to bring the Instrument-neutral ECB framework by differentiating majorly on the basis of currency denominations (FCY & INR)
2. Specific Entities such as Port trusts, Units in SEZ, SIDBI, EXIM Bank are allowed to raise Foreign currency (FCY) denominated ECB, as well as Indian rupee (INR), denominated ECBs`
3. Registered entities which are engaged in micro-finance activities (Registered non-profit companies, registered societies/trusts/cooperatives, and NGOs) are allowed to raise ECB through INR denominated ECB.
4. Now, there is a possibility of raising funds by Indian Banks as eligible borrowers, as they already permitted to avail Foreign Direct Investment.
Restriction on borrowers due to “expansion of Eligible borrowers’ list”
2. In accordance with the earlier Masala Bonds regime, entities classified as “related parties” were not eligible to invest in Masala Bonds (*Who are those related parties)
3. Earlier, individuals were allowed to lend ECBs only under Track III. While adhering to the additional due diligence requirements
2. To qualify as a recognized lender, lending entities must be a resident of Financial Action Task Force (FATF) or the International Organization of Securities Commission (IOSCO)
3. India is a member country of various multilateral and regional Financial Institutions, which will also be considered as recognized lenders.
4. Under the revised ECB norms, Related Party Lending for Masala Bonds is also permitted, as the Track III and rupee-denominated bonds (Masala Bonds) are merged to form a single category
5. Individuals are permitted as recognized lenders, only if they hold foreign equity or have a subscription to bonds/debentures listed abroad. Hence, now individuals can lend under both the tracks, FCY as well as INR; subject to the foreign equity holder or subscription to the bonds/debentures listed offshore.
· Medium-term ECB with minimum average maturity period (MAMP) of 1/3/5 years
· Long term ECB with MAMP of 10 years
· Indian rupee denominated ECB with MAMP of 3/5 years
2. The minimum maturity period for oil marketing companies is 3 years, subject to the overall borrowing must not be exceeding USD$ 10 billion or equivalent in a financial year.
2. If there is a default or breach of covenants, then the penal interest or repayment charge on the outstanding principal amount has to be restricted to 2% over and above the contracted rate of interest
2. USD 750 was the highest limit, which was only available for the entities in Infrastructure and manufacturing sectors
2. The ECB liability-equity ratio cannot exceed 7:1, when you raise the FCY denominated ECB from a direct foreign equity holder.
In case of entities undergoing restructuring or corporate insolvency resolution process (under the provisions of the insolvency and bankruptcy code, 2016); ECBs can only be raised if it is expressly permitted under the resolution plan.
The purpose of bringing these revised ECB norms is to ease the process of doing business in India. This will encourage the wider-set of entities to borrow funds from the overseas market. If you are looking to borrow funds from overseas for the growth of your business, then you must be aware of these revised External Commercial Borrowing (ECB) norms.
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