Do you know New (External Commercial Borrowings)ECB Framework

New External Commercial Borrowings Framework

The salient features of the new ECB framework are as under:

Merging of Tracks:                             

(i)  Merging of Tracks I and II as “Foreign Currency denominated ECB” (Any freely convertible Foreign Currency and

(ii) Merging of Track III and Rupee Denominated Bonds framework as “Rupee Denominated ECB”( Indian Rupee (INR)).

Eligible Borrowers:

(i) This has been expanded to include all entities eligible to receive FDI.

(ii) Additionally, Port Trusts, Units in SEZ, SIDBI, EXIM Bank, registered entities engaged in micro-finance activities, viz., registered not for profit companies, registered societies/trusts/cooperatives and non-government organisations can also borrow under this framework.

Recognised Lender:

(i) The lender should be resident of FATF or IOSCO compliant country.

(ii) Multilateral and Regional Financial Institutions, Individuals and Foreign branches / subsidiaries of Indian banks can also be lenders.

Minimum Average Maturity Period (MAMP):

(i) MAMP will be 3 years for all ECBs.

(ii) However, for ECB raised from foreign equity holder and utilised for specific purposes, the MAMP would be 5 years.

(iii) Similarly, for ECB up to USD 50 million per financial year raised by manufacturing sector, which has been given a special dispensation, the MAMP would be 1 year.

Late Submission Fee (LSF) for delay in Reporting:

(i) Any borrower, who is otherwise in compliance of ECB guidelines, except for delay in reporting drawdown of ECB proceeds before obtaining LRN or Form ECB 2 returns, can regularize the delay by payment of LSF as per the laid down procedure.

(ii) Late Submission Fee (LSF) for delay in reporting is mentioned below:

Sr. No. Type of Return/Form Period of delay Applicable LSF
1 Form ECB 2 Up to 30 calendar days from due date of submission INR 5,000
2 Form ECB 2/Form ECB Up to three years from due date of submission/date of drawdown INR 50,000 per year
3 Form ECB 2/Form ECB Beyond three years from due date of submission/date of drawdown INR 100,000 per year

(iii) The borrower, through its AD bank, may pay the LSF by way of demand draft in favour of “Reserve Bank of India” or any other mode specified by the Reserve Bank.

(iv) Such payment should be accompanied with the requisite return(s).

(v) Form ECB and Form ECB 2 returns reporting contraventions will be treated separately.

(vi) Non-payment of LSF will be treated as contravention of reporting provision and shall be subject to compounding or adjudication as provided in FEMA 1999 or regulations/rules framed thereunder.

(i) ECB up to USD 750 million or equivalent per financial year, which otherwise are in compliance with the parameters and other terms and conditions set out in the new ECB framework, will be permitted under the automatic route not requiring prior approval of the Reserve Bank.

(ii) The designated AD Category I bank while considering the ECB proposal is expected to ensure compliance with applicable ECB guidelines by their constituents.

(iii) Any contravention of the applicable provisions will invite penal action or adjudication under the Foreign Exchange Management Act, 1999.

(i) Lending and borrowing under the ECB framework by Indian banks and their branches/subsidiaries outside India will be subject to prudential guidelines issued by the Department of Banking Regulation of the Reserve Bank.

(ii) Further, other entities raising ECB are required to follow the guidelines issued, if any, by the concerned sectoral or prudential regulator.

End uses(Negative List):

The negative list, for which the ECB proceeds cannot be utilised, would include the following:
a) Real estate activities.
b) Investment in capital market.
c) Equity investment.
d) Working capital purposes except from foreign equity holder.
e) General corporate purposes except from foreign equity holder.
f) Repayment of Rupee loans except from foreign equity holder.
g) On-lending to entities for the above activities.

ECB liability-Equity ratio:

(i) For the purpose of ECB liability-equity ratio, ECB amount will include all outstanding amount of all ECBs (other than INR denominated) and the proposed one (only outstanding ECB amounts in case of refinancing) while equity will include the paid-up capital and free reserves (including the share premium received in foreign currency) as per the latest audited balance sheet.

(ii) Both ECB and equity amounts will be calculated with respect to the foreign equity holder. Where there are more than one foreign equity holders in the borrowing company, the portion of the share premium in foreign currency brought in by the lender(s) concerned shall only be considered for calculating the ratio.

(iii) The ratio will be calculated as per latest audited balance sheet.

Limit and leverage:

(i) Under the aforesaid framework, all eligible borrowers can raise ECB up to USD 750 million or equivalent per financial year under auto route.

(ii) Further, in case of FCY denominated ECB raised from direct foreign equity holder ECB liability-equity ratio for ECBs raised under the automatic route cannot exceed 7:1. However, this ratio will not be applicable if outstanding amount of all ECBs, including proposed one, is up to USD 5 million or equivalent.

(iii) Further, the borrowing entities will also be governed by the guidelines on debt equity ratio issued, if any, by the sectoral or prudential regulator concerned.

Procedure for raising ECB(Submission of ECB Form to AD Bank):

(i) All ECBs can be raised under the automatic route if they conform to the parameters prescribed under this framework.

(ii) For approval route cases, the borrowers may approach the RBI with an application in prescribed format (Form ECB – Annex I) for examination through their AD Category I bank.

(iii) Entities desirous to raise ECB under the automatic route may approach an AD Category I bank with their proposal along with duly filled in Form ECB.(Format of Form ECB is enclosed in the New ECB framework)

Loan Registration Number (LRN):

Any draw-down in respect of an ECB should happen only after obtaining the LRN from the Reserve Bank.

For obtaining LRN, copies of loan agreement for raising ECB are not required to be submitted to the Reserve Bank.

Cancellation of LRN:

The designated AD Category I banks may directly approach DSIM for cancellation of LRN for ECBs contracted, subject to ensuring that no draw down against the said LRN has taken place and the monthly ECB-2 returns till date in respect of the allotted LRN have been submitted to DSIM.

Refinancing of existing ECB:

(i) The designated AD Category I bank may allow refinancing of existing ECB by raising fresh ECB provided the outstanding maturity of the original borrowing (weighted outstanding maturity in case of multiple borrowings) is not reduced and all-in-cost of fresh ECB is lower than the all-in-cost (weighted average cost in case of multiple borrowings) of existing ECB.

(ii) Further, refinancing of ECBs raised under the previous ECB framework may also be permitted, subject to additionally ensuring that the borrower is eligible to raise ECB under the extant framework.

(iii) Raising of fresh ECB to part refinance the existing ECB is also permitted subject to same conditions.

(iv) Indian banks are permitted to participate in refinancing of existing ECB, only for highly rated corporates (AAA) and for Maharatna/Navratna public sector undertakings.

Conversion of ECB into equity:

Conversion of ECBs, including those which are matured but unpaid, into equity is permitted subject to the following conditions:

 

i. The activity of the borrowing company is covered under the automatic route for FDI or Government approval is received, wherever applicable, for foreign equity participation as per extant FDI policy.

ii. The conversion, which should be with the lender’s consent and without any additional cost, should not result in contravention of eligibility and breach of applicable sector cap on the foreign equity holding under FDI policy;

iii. Applicable pricing guidelines for shares are complied with;

 

iv. In case of partial or full conversion of ECB into equity, the reporting to the Reserve Bank will be as under:

a. For partial conversion, the converted portion is to be reported in Form FC-GPR prescribed for reporting of FDI flows, while monthly reporting to DSIM in Form ECB 2 Return will be with suitable remarks, viz., "ECB partially converted to equity".

b. For full conversion, the entire portion is to be reported in Form FC-GPR, while reporting to DSIM in Form ECB 2 Return should be done with remarks “ECB fully converted to equity”. Subsequent filing of Form ECB 2 Return is not required.

c. For conversion of ECB into equity in phases, reporting through Form FC-GPR and Form ECB 2 Return will also be in phases.

 

v. If the borrower concerned has availed of other credit facilities from the Indian banking system, including foreign branches/subsidiaries of Indian banks, the applicable prudential guidelines issued by the Department of Banking Regulation of Reserve Bank, including guidelines on restructuring are complied with;

vi. Consent of other lenders, if any, to the same borrower is available or atleast information regarding conversions is exchanged with other lenders of the borrower.

vii. For conversion of ECB dues into equity, the exchange rate prevailing on the date of the agreement between the parties concerned for such conversion or any lesser rate can be applied with a mutual agreement with the ECB lender. It may be noted that the fair value of the equity shares to be issued shall be worked out with reference to the date of conversion only.

*Meaning of FATF and IOSCO compliant country:

FATF compliant country: A country that is a member of Financial Action Task Force (FATF) or a member of a FATF-Style Regional Body; and should not be a country identified in the public statement of the FATF as (i) A jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or (ii) A jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies.

 

IOSCO compliant country: A country whose securities market regulator is a signatory to the International Organization of Securities Commission's (IOSCO’s) Multilateral Memorandum of Understanding (Appendix A Signatories) or a signatory to bilateral Memorandum of Understanding with the Securities and Exchange Board of India (SEBI) for information sharing arrangements.

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