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External Commercial Borrowings (ECBs) are commercial loan availed from non-resident lenders by an Indian entity with a minimum average maturity of 3 years
Table of Contents
Presenting an overview to allow decision makers to take important decisions effectively and efficiently:
As a part of the development policy, India has always promoted capital inflows. In other words to make domestically investment foreign capital is obtained from foreign countries. There are some reasons which compelled our government to go after foreign capital such as Lack of domestic capital and deficit in the current account. There are different types of foreign capital and the major category is foreign investment including FDI (Foreign Direct Investment) and FPI (Foreign Portfolio Investment). There are following types of foreign capital such as trade credit, NRI deposits, and External Commercial Borrowings.
External Commercial Borrowings (ECB) is a commercial loan availed from non-resident lenders by an Indian entity with a minimum average maturity of 3 years. These types of loans are provided by foreign commercial banks and other institutions. External Commercial Borrowings (ECBs) are defined as money borrowed from foreign resources in the form of
External Commercial Borrowings have emerged as a major form of foreign capital like FDI and FII in the post-reform period. In Country from several years contribution of ECBs was between 20 to 35 percent of the total capital flows. In large number Indian corporate and PSUs have used the ECB as sources of investment. Private sector corporates have obtained the bulk of the overseas loans or ECBs. ECB is easy to obtain fund for the corporates and it also helps them to make business/investment expansion. For expansion of existing capacity as well as for fresh investment, ECBs are being permitted by the Government as a source of finance for Indian Corporates.
ECB refers to a type of funding other than Equity. Foreign Direct Investment is termed as foreign money used to finance the Equity Capital. In case of ECB, regulations stipulated by the Government or its agencies such as Reserve Bank of India (RBI) should be satisfied. ECB includes bonds, Credit notes, Asset-Backed Securities, Mortgage Backed Securities or anything of that nature.
Here are the following which are not included in the External Commercial Borrowings (ECB):
Here are the following advantages of External Commercial Borrowings:
India has a vibrant corporate sector unlike many other emerging market economies and many of them have overseas operations as well. In India, to the corporates, the domestic financial market is not often able to provide big sized loans at a competitive rate of interests. For domestic companies, ECBs have emerged as a valuable source of the investable resource of funds. Under ECB Policy government put restrictions on the amount of loan that can be obtained by a company, end user restrictions, interest rate ceiling for ECBs, maturity period etc. The government put a ceiling on the total amount of PCBs that can be obtained through the ECB route during a year by all Indian firms.
Is a Limited Liability Partnership (LLP) or Partnership firm or Proprietary concern eligible to raise ECB?
No, entities which are not covered by the provisions contained in Master Direction issued by RBI are not eligible to raise ECB. (such companies doing trading business, companies involved in activities such as tourism, beauty clinics, entertainment business, retail sales, e-commerce companies, etc., on any other activity not covered within these provisions)
Eligible Borrowers under External Commercial Borrowings (ECB) guidelines:
Recognized Lenders:
The maximum amount of ECB which can be raised by a corporate is USD 750 million or its equivalent during a financial year other than hotel, hospital and software sectors, and corporate in the miscellaneous services sector.
(Fixed rate loans: swap cost +margin)
ECB Policy is regularly regulated by Reserve Bank of India and Government of India.
In case of enforcement of charge – property will be transferred only to a person resident in India
Compounding of contraventions means settle an offense committed by the contravener through the imposition of a monetary penalty without going in for litigation after the contravener acknowledges having committed the contravention.
To provide comfort by minimizing transaction costs, while taking a severe view of willful, malafide and fraudulent transactions but it is not equal to the withdrawal of a charge or a complaint but an agreement not to pursue the legal battle and spare the accused from further consequences.
New Delhi
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Depends upon whether the contravention is
However, RBI reserves the right to classify the contraventions and nobody else has any right to classify any contravention as technical suo moto.
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