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RBI Eases External Commercial Borrowing (ECB) Norms: January 2019

External Commercial Borrowing

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.

Highlights of Latest External Commercial Borrowing Norms

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.

Highlight 1: Reclassification and Merging of Tracks of External Commercial Borrowing (ECB)

Earlier Framework Revised ECB Framework
1.       In earlier regulations, there were three distinct identified Tracks. Track I, Track II, and Track III. 1.       But now they have been modified into two.

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”

“INR-Indian Rupee”

“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)

Highlight 2: Expansion of Eligible borrowers’ list

Earlier Framework Revised ECB Framework
1.       Eligible borrowers were categorized under different tracks (Tracks I, II, III; which now bifurcated into “FCY Denominated ECB” and “INR Denominated ECB”)   and permitted only certain identified entities to avail ECBs. 1.       All the entities which are allowed to receive Foreign Direct Investment (FDI) as per the FDI policy can raise ECB from Person residing outside India.

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”

  1. The expansion of the borrowers’ list has also resulted in the expulsion of a few entities, which would not be allowed to avail FDI under the FDI policy. Hence they won’t be able to avail the ECB as per the revised ECB framework.
  2. The list of restricted ECB borrowers includes Lottery business, gambling, and betting including casinos, chit funds, Nidhi company, entities in real estate business, companies manufacturing cigars etc., activities/sectors not open to private sector investment such as atomic energy, railway operations etc.

Highlight 3: Changes in the pool of Recognized lenders

Earlier ECB framework Revised ECB Framework
1.       Former ECB framework provided an intricate system for the recognized lenders under different tracks

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

1.       Revised ECB framework has eased the classification of recognized lenders, to bring it in line with the Masala Bond regime.

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.


Increased Lending Options

  1. Revised ECB framework has resulted in increased lending options, allowing the various new lenders.
  2. The list of newly recognized lenders includes hedge funds, overseas corporate bodies, foreign portfolio investors, limited partnership etc.
  3. These recognized lending entities are allowed to lend from offshore market to domestic entities while adhering to the compliances with the applicable regulatory conditions

Highlight 4: Relaxation in the Minimum Average Maturity Period

Earlier ECB Framework  Revised ECB Framework
1.       Earlier, there were three tracks categorized under ECB framework:

·         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

1.       In the revised ECB framework, there are two tracks and both have overall MAMP of 3/5 years, irrespective of the amount of borrowing.

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.


  1. The MAMP for ECBs availed from foreign equity holders (Proposed to be utilized for working capital purposes, general corporate purposes, or for repayment of rupee loans) remains 5 years.

Highlight 5: Uniform Application of All-in-cost Ceilings

Earlier ECB Framework Revised ECB Framework
1.       The uniform all-in-cost ceiling of 450 bases over the benchmark rate 1.       There is a uniform all-in-cost ceiling of 450 basis points plus the benchmark rate.

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


  1. All-in-cost will also include the Export Credit Agency (ECA) charges.
  2. In the case of Foreign Currency Convertible Bonds (FCCBs), all the issue related responses cannot exceed 4% of the issue size.
  3. In the case of private placement, all issue related expenses cannot exceed 2% of the issue size

Highlight 6: Liberalization of Borrowing limits

Earlier ECB Framework Revised ECB Framework
1.       In earlier ECB framework, there was a sector-wise borrowing limit.

2.       USD 750 was the highest limit, which was only available for the entities in Infrastructure and manufacturing sectors

1.       Under the revised ECB framework the borrowing limits have been relaxed. Now, all the eligible borrowers can raise ECB up to USD 750 million per financial year.

2.       The ECB liability-equity ratio cannot exceed 7:1, when you raise the FCY denominated ECB from a direct foreign equity holder.


  1. Software development Companies and microfinance NBFCs can raise ECB up to USD 750 million
  2. For the calculation of ECB liability-equity ratio, the ECB amount will be the whole outstanding amounts of ECBs (Other than INR ECBs).
  3. The ECB amount and the equity must be calculated with respect to the foreign equity holder.

Highlight 7: Changes in Hedging Provisions:

Earlier ECB Framework Revised ECB Framework
1.       Earlier the mandatory hedging requirements for eligible borrowers to raise ECB was 100% 2.       The hedging requirement for eligible borrowers raising the FCY denominated ECB is 70%


  1. The revised hedging ECB norms will only apply to ECBs with an average maturity of fewer than 5 years.
  2. This ultimately eases the norms for overseas borrowings and reduces the hedging cost

Highlight 8: Refinancing of Existing ECB:

  1. Now the refinancing of existing ECB is possible by raising the fresh ECB, If-
  2. The outstanding maturity of the original borrowing or the weighted outstanding maturity in case of multiple borrowings is not reduced.
  3. The all-in-cost of the fresh ECB is lower than the existing ECB or the weighted average cost in case of multiple borrowings.

Highlight 9: Raising ECB by entities under restructuring:

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.

For more information, please contact Enterslice.

Narendra Kumar

Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.

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