ecb norms

RBI External Commercial Borrowings (ECB) Framework, 2022

ECB Framework

External Commercial Borrowings (ECB) are loans, debts or borrowings by Indian entities from entities registered outside India which are used for commercial purposes. ECBs are extended by external sources from any recognized foreign entity. The benefit of the ECB is that entities can borrow a large number of currencies without having to compromise on control. Since the borrowings come from a foreign country it is necessary to ensure compliance with all the applicable ECB rules. Failure to comply with the ECB rules attracts penalties and legal action under the Foreign Exchange Management Act of 1999 (FEMA).
In India, the Reserve Bank of India (RBI) regulates the ECB and over the years RBI has reduced restrictions on eligible borrowers and lenders, end-use restrictions, minimum average maturity rate, etc. The simplified norms allow ECB to be availed on easy terms. In addition to that RBI has granted several benefits for availing ECB such as lower interest rates and greater access to the global market. However, certain regulations have to be followed for obtaining ECB. This blog briefly discusses the ECB framework and new ECB guidelines issued by RBI which has to be considered before availing ECB from a foreign lender.

What is the procedure for raising ECB?

For raising ECB via automatic route, it has to conform to the parameters prescribed for the automatic route in the ECB framework. For this, the entity has to approach an AD Category-I Bank with its proposal along with duly filled Form ECB.

For raising ECB via the Government route, the borrowers have to approach the RBI with an application prescribed in Form ECB for examination through AD Category-I Bank. The RBI has to consider the application depending on the overall guidelines, economic situation, merits of the proposal, etc. Further, if an ECB proposal before RBI is beyond a threshold limit prevalent at that time, then it will be placed before the Empowered Committee (EC) which is supposed to give recommendations to the RBI. Based on the recommendations given by EC, the final decision shall be taken by the RBI.

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What is the investment limit for ECB?

ECB up to USD 750 Million or an equivalent amount can be raised by eligible borrowers under Automatic Route as per the extant ECB framework. However, the RBI introduced a new circular dated 1st August 2022 which temporarily enhanced the investment limit from the date of issue till 31st December 2022. This temporary modification was done to meet the situation of falling Indian currency against US dollars in the market. The new RBI regulation has been discussed in detail in the coming paragraphs.

What is the regulatory framework of the ECB in India?

The following are the ECB Framework in India:

  1. Foreign Exchange Management Act (FEMA) of 1999[1];
  2. Exchange Management (Borrowing and Lending) Regulations of 2018 (ECB Regulations);
  3. Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations of 2004; and
  4. Master Direction- External Commercial Borrowings, Trade Credits and Structured Obligations (Master Directions).

In addition to the above, RBI is empowered to introduce circulars and notifications time and again to meet the market requirements. In this regard, the RBI also issued a circular dated 1st August 2022 introducing temporary modifications as required for maintaining market stability. This circular has been discussed in detail below.

New RBI Guidelines on ECB

RBI vide press release dated 6th July 2022 liberalized the forex laws and announced measures to increase the inflow of foreign exchange in India. The press release was introduced keeping in mind the outflows in overseas investment in the domestic financial market. To diversify and expand the sources of forex funding and to mitigate the volatility and global spillover, the RBI undertook measures to enhance forex inflows while maintaining overall macroeconomic and financial stability. One such measure is also related to the relaxation of ECB norms. The circular was issued by exercising the power conferred upon the RBI under sections 10(4) and 11(2) of the Foreign Exchange Management Act, 1999 and subject to any permission or approval as may be required under any other law.

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Under the extant ECB framework, an eligible borrower was allowed to raise EBC only up to USD 750 million or any other equivalent amount within a financial year under the automatic route. However, pursuant to the press release, the limit has been enhanced to USD 1.5 million in the financial year till 31st December 2022. In furtherance to this, RBI also raised the all-in-cost ceiling prescribed under the ECB framework by 100 bps for ECBs to be availed by eligible borrowers. Before the press release, the all-in-cost ceiling for a foreign currency ECB was the benchmark rate plus 500 bps point. All-in-cost ceiling means the maximum cost that the borrower is permitted to incur on the ECB including rates on interest, other fees, expenses, charges, etc; and excluding commitment fees, pre-payment charges and withholding tax payable in INR.

In furtherance to the press release, the RBI issued a circular dated 1st August 2022 to liberalize the ECB framework in India by making temporary modifications to the existing ECBs framework. The temporary modifications were available from the date it came into effect till 31st December 2022. These temporary modifications are:

  1. The investment limit under the automatic route has been increased from USD 750 million or equivalent amount to USD 1.5 million or equivalent.
  2. The all-in-cost ceiling for ECBs has been increased by 100 bps. The application of enhanced ceiling shall apply only to those eligible borrowers of investment grade rating from Indian Credit Rating Agencies (CRAs). Remaining eligible borrowers have to raise ECB within the existing all-in-cost ceiling.
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All-in-cost means the cost involved in a financial transaction or business operation. It consists of the rate of interest, fees, expenses, charges, and guarantee fees whether paid in foreign currency or Indian Rupees. It excludes costs like commitment fees, pre-payment fees or charges and withholding tax payable. Further, in the case of fixed-rate loans, the swap cost plus spread should be more than the floating rate plus the applicable spread. The ceiling of All-in-cost per annum is limited to 450 bps over the benchmark rate per annum.

These relaxations will apply to AD Category-I banks, their constituents and customers. Necessary amendments have been made to the Foreign Exchange Management (Borrowing and Lending) (Amendment) Regulations, 2022 to give effect to the changes.


 Indian Rupee depreciated by 4.1% in the financial year 2021-22. Through changes in ECB regulations, RBI attempted to control the value of the rupee which was falling against the US dollar. The liberalized measures were an attempt to alleviate the rupee value against the value of dollar and to ensure the orderly functioning of the market.

Also Read: External Commercial Borrowing (ECB) Regulations

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