3. External Commercial Borrowing (ECB)
3
ECB is an instrument used in India to
facilitate the access to foreign money by
Indian corporations and PSUs (public
sector undertakings)
Its a source of funds for financing
expansion of existing capacity and for
fresh investment out of territory
4. Ways of raising ECB
4
Automatic Route
• Does not require
RBI approval
Approval Route
• Approval required
from RBI
6. Borrowers
6
Corporate including hotel, hospital and
software sector
Infrastructure Finance companies (IFCs)
Units in SEZ zones
NGO involved in Micro finance
7. Limits for Raising ECB
7
Category Amount (USD) per unit
/per financial year
Corporate other than those
in service sector (i.e. hotel,
hospital and software)
Up to 750 M or equivalent
Corporate in service sector
(ECB not applicable for
Land acquisition)
Up to 200 M or equivalent
NGO engaged in Micro
Finance
Up to 10 M or equivalent
(Forex exposure to be fully
hedged)
9. Eligible Borrowers (1)
9
Foreign Investors deleing with Infrastructure and export finance such
as EXIM bank
Banks and financial institutions which had participated in the textile or
steel sector restructuring package as approved by the Government.
ECB with minimum average maturity of 5 years by NBFC to finance
import of infrastructure equipment for leasing to infrastructure projects.
Infrastructure Finance Companies (IFCs) i.e. NBFCs, categorized as
IFCs, by RBI (beyond 50% of their owned funds) for on-lending to the
infrastructure sector as defined under the ECB policy and subject to
compliance of certain stipulations.
10. Eligible Borrowers (2)
10
Foreign Currency Convertible Bonds (FCCBs) by Housing Finance
Companies.
Special Purpose Vehicles (SPV) or any other entity notified by the RBI,
set up to finance infrastructure companies / projects exclusively.
Financially solvent ulti-State Co-operative Societies engaged in
manufacturing.
SEZ developers for providing infrastructure facilities within SEZ.
11. Eligible Borrowers (3)
11
Eligible Corporate under automatic route other than in the services
sector i.e. hotels, hospitals and software sector can avail of ECB
beyond USD 750 million per financial year.
Corporate in the service sector for availing ECB beyond USD 200 Mn.
per financial year.
Cases falling outside the purview of the automatic route limits and
maturity indicated, etc.
12. Limits for Raising ECB
12
Category Amount (USD) per unit
/per financial year
Corporate other than those
in service sector (i.e. hotel,
hospital and software)
Beyond to 750 M or
equivalent
Corporate in service sector
(ECB not applicable for
Land acquisition)
Beyond 200 M or
equivalent
14. Recognized Lenders
14
International banks
International capital
markets
Multilateral financial
institution (such as IFC,
ADB, DCD etc)/ Regional
Financial Institution and
Government owned
Financial Institution
Export Credit Agencies Supplier of Equipment Foreign Collaborators
Foreign Equity Holders
15. End use permitted (1)
15
Import of Capital goods
Executing new projects
Modernization/Expansion of existing units
Infrastructure projects for PWD works
Payment for Natural resources (like spectrum
allocation)
16. End use permitted (2)
16
First and second stage acquisition of shares in
disinvestment process under the Government’s
disinvestment program of PSU shares
Overseas direct investment in Joint Ventures (JV)/ Wholly
Owned Subsidiary (WOS)
Interest during Construction (IDC) for Indian companies in
Infrastructure sector
Lending to NGO engaged in Micro finance activities
17. Average Maturity on Amount Borrowed
17
Limits Minimum Average
Maturity Period
Up to USD 20 M or its
equivalent
3 years
Above USD 20 M and
up to 750 M or
equivalent
5 years
FEMA
The Foreign Exchange Management Act(FEMA) was an act passed in the winter session of Parliament in 1999 which replaced Foreign Exchange Regulation Act. This act seeks to make offenses related to foreign exchange civil offenses. It extends to the whole of India.
FEMA, which replaced Foreign Exchange Regulation Act(FERA), had become the need of the hour since FERA had become incompatible with the pro-liberalisation policies of the Government of India. FEMA has brought a new management regime of Foreign Exchange consistent with the emerging framework of the World Trade Organization (WTO). It is another matter that the enactment of FEMA also brought with it the Prevention of Money Laundering Act 2002, which came into effect from 1 July 2005.
GUIDELINES ON BORROWINGS
FEMA guidelines provide Indian companies to access funds from abroad by following methods
External Commercial Borrowings (ECB)
It refers to commercial loans in the form of bank loans, buyers’ credit, suppliers’ credit, securitized instruments e.g. floating rate notes and fixed rate bonds, non-convertible, optionally convertible or partially convertible preference shares) availed of from non-resident lenders with a minimum average maturity of 3 years.
Foreign Currency Convertible Bonds (FCCBs)
It refers to a bond issued by an Indian company expressed in foreign currency, and the principal and interest in respect of which is payable in foreign currency.
Preference shares (i.e. non-convertible, optionally convertible or partially convertible)
These instruments are considered as debt and denominated in Rupees and rupee interest rate will be based on the swap equivalent of LIBOR plus spread.
Foreign Currency Exchangeable Bond (FCEB)
FCEB is a bond expressed in foreign currency, the principal and interest in respect of which is payable in foreign currency, issued by an Issuing Company and subscribed to by a person who is a resident outside India, in foreign currency and exchangeable into equity share of another company, to be called the Offered Company, in any manner, either wholly, or partly or on the basis of any equity related warrants attached to debt instruments. The FCEB may be denominated in any freely convertible foreign currency.
All-in-cost ceilings
All-in-cost includes rate of interest, other fees and expenses in foreign currency except commitment fee, pre-payment fee, and fees payable in Indian Rupees. The payment of withholding tax in Indian Rupees is excluded for calculating the all-in-cost.
