Borrowings from Non-residents

External Commercial Borrowings [ECB]

ECB is an important component of India’s overall external debt. ECB refers to commercial loans raised by eligible resident entities from recognized non-resident lenders and should conform to parameters such as minimum maturity, permitted and non- permitted end-uses, maximum all-in-cost ceiling, etc. The parameters apply in totality and not on a standalone basis.

ECB can be raised in any freely convertible foreign currency as well as in Indian Rupees. Change of currency of ECB from one convertible foreign currency to any other convertible foreign currency as well as to INR is freely permitted however, change of currency from INR to any foreign currency isnot permitted.

ECB can be in the following forms:

FCY Denominated ECB	INR denominated ECB
Loans including bank loans.	Loans including bank loans.
Financial Lease	Financial Lease
Floating/fixed rate notes/bonds/debentures (other than fully and compulsorily convertible instruments)	Floating/fixed rate notes/bonds/debentures/preference shares (other than fully and compulsorily convertible instruments)
Trade credits beyond 3 years	Trade credits beyond 3 years
Foreign Currency Convertible Bonds (FCCB) and Foreign Currency Exchangeable Bonds (FCEB)	Plain vanilla Rupee denominated bonds issued overseas (also known as Masala Bonds), which can either be either placed privately or listed on exchanges as per host country regulations.

A. Minimum Average Maturity

Minimum average maturity period (MAMP) will be 3 years for all the entities except the following:

Sr. No.	Particulars	Condition	No. of Year
1	Manufacturing Sector Companies	ECB upto 50 million USD per financial year	MAMP 1 year.
		More than 50 Million USD per financial year	MAMP 3 year.
2	ECB raised from foreign equity holder	Utilised for working capital/general corporate purpose/ repayment of rupee loans	MAMP 5 years.
3	Other than above	-	MAMP 3 years.

However, Public Sector Oil Marketing Companies (OMCs) can raise ECB for working capital purposes with minimum average maturity period of 3 years up to USD 10 billion or equivalent from all recognized lenders under the automatic route without mandatory hedging and individual limit requirements.

The call and Put option, if any, shall not be exercisable prior to completion of minimum average maturity.

B. Eligible Borrowers

FCY Denominated ECB	INR denominated ECB
All entities eligible to receive FDI	All entities eligible to raise FCY ECB
Port trust, Units in SEZ, SIDBI, EXIM Bank of India	Registered entities engaged in micro finance activities viz registered not for profit companies, registered societies/trust/cooperatives and Non-Government organisations.

C. Recognised Lenders

Recognised lenders should be any entity which is resident of FATF** or IOSCO** Compliant countries.

Additional points:

Particulars	Remarks
Multilateral financial institutions (such as, IFC, ADB, etc.) / regional financial institutions and Government owned (either wholly or partially) financial institutions	Can be recognised lenders
Individuals	Can be recognised lenders only if they are resident of FATF or IOSCO compliant countries: Foreign equity holders of borrower entity; or Holder of debt securities listed abroad
Foreign branches / subsidiaries of Indian banks
For FCY ECB	Can be recognised lenders (except for FCCB & FCEB)
For Rupee denominated ECB	Cannot be recognised lenders (However, participation as arrangers/ underwriters/ market-makers/ traders for Rupee denominated Bonds issued overseas is allowed subject to prudential norms.)

** (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.)

D. All-in-Cost (AIC)

The All-in-cost ceiling is prescribed through a spread over the benchmark***, i.e. 450 basis points spread per annum over 6 months LIBOR or applicable benchmark for the respective currency.

All-in-cost includes and excludes the following:

Expenses included	Expenses excluded
Rate of interest, other fees/expenses/charges guarantee fees, Export Credit Agency (ECA) charges, whether paid in FC or INR	Commitment fees withholding tax payable in INR

In the following cases, All in cost should be restricted:

Particulars	All in Costs	Limit
Fixed rate Loans	Swap costs + Spread	Should not be more than floating rate + applicable spread (i.e. 450 basis points).
Private Placement	Issue related expenses	Should not exceed 2% of the issue size.
Foreign Currency Convertible Bonds	Issue related expenses	Should not exceed 4% of the issue size.

(ECB’s proceeds cannot be used for payment of interest/charges)

***Benchmark Rate: Benchmark rate in case of foreign currency denominated ECB/ TC (FCY ECB/TC) refers to 6-month London Interbank Offered Rate (LIBOR) rate of different currencies or any other 6-month interbank interest rate applicable to the currency of borrowing, for e.g., Euro Interbank Offered Rate (EURIBOR). Benchmark rate in case of Rupee denominated ECB (INR ECB) will be prevailing yield of the Government of India securities of corresponding maturity.

E. Permitted End-Use

The concept of negative list is introduced to provide a list of activities where ECB proceeds cannot be utilized which include the following:

1. Real Estate Activities*
2. Investment in capital market
3. Equity Investment
4. Working capital purposes except from foreign equity holders
5. General corporate purposes except from foreign equity holders
6. Repayment of Rupee Loans except from foreign equity holders
7. On lending to entities for the above activities

*Real estate activities: Any real estate activity involving own or leased property for buying, selling and renting of commercial and residential properties or land and also includes activities either on a fee or contract basis assigning real estate agents for intermediating in buying, selling, letting or managing real estate. However, this would not include construction/development of industrial parks/integrated township/SEZ, purchase/long term leasing of industrial land as part of new project/modernisation of expansion of existing units or any activity under ‘infrastructure sector’ definition.

F. Parking of ECB Proceeds

ECB proceeds are permitted to be parked abroad as well as domestically in a manner prescribed by RBI.

G. Limits and Leverage

Under the ECB framework, all eligible borrowers can raise ECB up to USD 750 million or equivalent per financial year under automatic route.

Financial Limit	Leverage	Automatic Route/Approval Route
ECB more than USD 750 million		Approval Route
ECB upto USD 750 million	ECB/Equity Ratio exceeds 7:1	Approval Route
	ECB/Equity Ratio does not exceeds 7:1*	Automatic Route

*Not applicable to existing /proposed ECB upto USD 5 million. ECB exceeding 5 million should fall in line for leverage requirements.

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.

ECB liability-Equity ratio: 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. 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. The ratio will be calculated as per latest audited balance sheet.

H. Exchange rate on conversion

Particulars	Rate to be considered
Form FCY ECB into INR ECB	Cannot exceed the Exchange Rate on the date of such agreement for conversion.
From INR ECB to Rupee	Exchange rate prevailing at the date of settlement

I. Hedging provision

The entities raising ECB are required to follow the guidelines for hedging issued, if any, by the concerned sectoral or prudential regulator in respect of foreign currency exposure.

J. Procedure for raising ECBs under approval route

The borrowers may approach the RBI with an application in prescribed format (Form ECB) for examination through their AD Category I bank. Such cases shall be considered keeping in view the overall guidelines, macroeconomic situation and merits of the specific proposals.

L. Reporting requirements

1. Loan Registration Number is a mandatory requirement for borrowing under ECB framework.
2. Changes in Terms and Conditions of ECB should be reported to the DSIM through revised Form ECB within 7 days.
3. The borrowers are required to report actual ECB transactions through Form ECB 2 Return through the AD Category I bank on monthly basis so as to reach DSIM within seven working days from the close of month to which it relates.
4. Non Submission of Form ECB 2, will attract late submission fee.

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

M. Conversion of ECB into Equity

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

1. 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;
2. Applicable pricing guidelines for shares are complied with;
3. In case of partial or full conversion of ECB into equity, the reporting to the Reserve Bank has to be complied with.
4. 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;
5. 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.
6. 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.

N. Borrowings by Entities under Investigation

All entities against which investigation/adjudication/appeal by the law enforcing agencies for violation of any of the provisions of the Regulations under FEMA is pending, may raise ECBs as per the applicable norms. The borrowing entity shall inform about pendency of such investigation/adjudication/appeal to the AD Category-I banks/RBI as the case may be.

O. ECB by entities under restructuring/ECB facility for Resolution Applicants under CIRP

An entity which is under restructuring scheme/ corporate insolvency resolution process can raise ECB only if specifically permitted under the resolution plan.

p. Brief Framework of ECB facility for Startups

Sr. No.	Particulars	Framework for availing ECB under Automatic Route
1.	Eligibility	An entity recognised as a Start-up by the Central Government as on date of raising ECB
2.	Maturity	Minimum average maturity period will be 3 years.
3.	Recognised Lender	Lender / investor shall be a resident of a FATF compliant country. However, foreign branches/subsidiaries of Indian banks and overseas entity in which Indian entity has made overseas direct investment as per the extant Overseas Direct Investment Policy will not be considered as recognized lenders under this framework.
4.	Forms	Loans or non-convertible, optionally convertible or partially convertible preference shares.
5.	Currency	Any freely convertible currency or in Indian Rupees (INR) or a combination thereof. In case of borrowing in INR, the non-resident lender, should mobilise INR through swaps/outright sale undertaken through an AD Category-I bank in India.
6.	Limit	The borrowing per Start-up will be limited to USD 3 million or equivalent per financial year either in INR or any convertible foreign currency or a combination of both.
7.	All – in - cost	Shall be mutually agreed between the borrower and the lender.
8.	End Uses	For any expenditure in connection with the business of the borrower.
9.	Conversion into Equity	Conversion into equity is freely permitted subject to Regulations applicable for foreign investment in Start-ups.
10.	Security	Security can be in the nature of movable, immovable, intangible assets (including patents, intellectual property rights), financial securities, etc. and shall comply with FDI / FPI / or any other norms applicable for foreign lenders / entities holding such securities. Further, issuance of corporate or personal guarantee is allowed. Guarantee issued by a non-resident(s) is allowed only if such parties qualify as lender under ECB for Start-ups. However, issuance of guarantee, standby letter of credit, letter of undertaking or letter of comfort by Indian banks, all India Financial Institutions and NBFCs is not permitted.
11.	Hedging	The overseas lender, in case of INR denominated ECB, will be eligible to hedge its INR exposure through permitted derivative products with AD Category – I banks in India. The lender can also access the domestic market through branches/ subsidiaries of Indian banks abroad or branches of foreign bank with Indian presence on a back to back basis.
12.	Conversion Rate	In case of borrowing in INR, the foreign currency - INR conversion will be at the market rate as on the date of agreement.
13.	Other Important Provisions	Provisions on leverage ratio and ECB liability: Equity ratio will not be applicable. Other provisions as included in ECB Framework would be applicable. Other start – ups not included in the aforesaid definition of start- up but are eligible to receive FDI, can also raise ECBs under the general ECB route/framework.

Reporting of External Commercial Borrowings

Particulars	Forms/ Documents	Documents to be Submitted to Whom	Period in which to be reported	Remarks
For Allotment of Loan Registration Number (LRN) (both under Automatic and Approval Route) from RBI	Form ECB in duplicate which also contains terms and conditions of ECB (Certified by a CA or a CS)	Designated AD bank.	Loan amount cannot be drawn till the time LRN is obtained.	1. Borrowers may enter into loan Agreement complying with the ECB guidelines with recognised lender for raising ECB under the Automatic Route without the prior approval of the Reserve Bank. 2.Loan Agreement need not be submitted.
Monthly return regarding use of External Commercial Borrowings.	Form ECB- 2 Return (Certified by a CA or a CS and AD)	Through Designated AD Bank to Department of Statistics and Information Management(DSIM), Reserve Bank of India.	Within 7 working days from the close of month to which it relates.	If there are no transactions, still a NIL return should be submitted.
Application for ECB under Approval Route	Form ECB (Annexure I) along with: (1) A copy of offer letter from the overseas lender/supplier furnishing complete details of the terms and conditions of proposed ECB and (2) A copy of the import contract, proforma/ commercial invoice/ bill of lading certified by AD.	Designated AD bank to the Chief General Manager-in-Charge, Foreign Exchange Department, Reserve Bank of India, Central office, External Commercial Borrowings Division, Mumbai.
Conversion of ECB into Equity- In case of Full Conversion.	Form FC- GPR	Online on FIRMS portal (under SMF)	Within 7 working days from the close of month to which it relates.	1. In case of Full Conversion the words ‘’ECB Wholly Converted to Equity’’ should be clearly indicated on top of the ECB- 2 form. 2. Once reported, filing of ECB-2 in the subsequent months is not necessary.
	Form ECB-2	Department of Statistics and Information Management (DSIM), RBI
Conversion of ECB into Equity- In case of Partial Conversion.	Form FC- GPR for conversion of shares and for remaining portion of ECB, Form ECB- 2	Online on FIRMS portal. Department of Statistics and Information Management (DSIM), RBI	Within 7 working days from the close of month to which it relates.	In case of Partial Conversion the words ‘’ECB Partially Converted to Equity’’ should be clearly indicated on top of the ECB- 2 form
Changes/ Modifications in the drawdown/ repayment schedule	Revised Form ECB	Through Designated AD Bank to Department of Statistics and Information Management (DSIM), Reserve Bank of India.	Not later than 7 days from the date of changes effected.	Average maturity period, as declared while obtaining the LRN should be maintained.
Changes in the currency of Borrowings				Subject to the condition that the proposed currency of borrowing is freely convertible.
Change of the AD Bank				Subject to the No- Objection certificate (NOC) from the existing Designated AD bank.
Changes in the Name of the Borrower Company				Subject to production of Supporting Documents evidencing the change in the name from the Registrar of Companies.
Change in the Recognised Lender				Authorised dealer ensuring that the new Lender is a Recognised Lender per the extant ECB Norm.
Cancellation of LRN				Subject to ensuring that no Drawdown for the said LRN has taken place and the monthly ECB-2 returns till date in respect of the LRN have been submitted to DSIM.
Change in the end use of ECB proceeds.				Subject to ensuring that the proposed end use is permissible under the Automatic Route as per the extant ECB guidelines and the monthly ECB-2 returns till date in respect of the LRN have been submitted to DSIM.
Reduction in Amount of ECB.				The consent from the Lender for reduction in Loan Amount has been obtained
Reduction in all-in-cost of ECB				Subject to ensuring that the consent of the Lender has been obtained.
Reporting of FCCB and FCCEB shall be same as Above except for the changes to be incorporated.

STOP PRESS: RBI in consultation with Government of India has issued a circular dated 30th July 2019 to rationalize the end – use provisions under ECB Policy. It allows certain eligible borrowers including NBFC’s to raise funds from recognized lenders for working capital and general corporate purposes subject to fulfillment of minimum average maturity period and other conditions under ECB Framework. It also allows NBFCs to borrow for on-lending purposes. There are also other relaxations brought out by circular with respect to end use provisions for certain category of eligible corporate borrowers and lender banks. One can refer to the circular at https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11636&Mode=0.

TRADE CREDITS

Trade Credits (TC) refer to credits extended for imports directly by the overseas supplier, bank and financial institution for maturity of less than three years. Trade Credits can be supplier’s trade credits or buyer’s trade credits.

Supplier’s Trade Credit – credit for imports into India extended by the overseas supplier.

Buyer’s Trade Credit – loans from overseas bank or financial institution.

Amount and Maturity

Automatic Route - Up to US $ 150 million or equivalent per import transaction for oil/gas refining and marketing, airline and shipping companies. For others up to USD 50 million or equivalent per import transaction.

For import of permissible non-capital goods the maturity period is up to one year from the date of shipment or the operating cycle whichever is less. For import of permissible capital goods the maturity period is up to three years from the date of shipment. No roll-over/extension will be permitted beyond the permissible period. The maturity period is the same for transactions under the Automatic Route or the Approval Route. For shipyards/shipbuilders, the period of Trade Credit for import of non - capital goods can be up to 3 years

All in-cost ceiling for Trade Credits is benchmark plus 250 basis points. It includes rate of interest, other fees, expenses, charges, guarantee fees whether paid in foreign currency or INR. However, Withholding tax payable in INR shall not be a part of all-in-cost.

Parameters	FCY denominated TC	INR denominated TC
Exchange rate in case of change/conversion	Exchange Rate prevailing on the date of agreement between parties concerned for such change or exchange rate, whichever is less than the rate prevailing on the date of agreement, if consented by the TC lender.	Exchange rate will be rate prevailing on the date of settlement.
Hedging provision	The entities raising TC are required to follow the guidelines for hedging, if any, issued by the concerned sectoral or prudential regulator in respect of foreign currency exposure. Such entities shall have a board approved risk management policy.	The overseas investors are eligible to hedge their exposure in Rupee through permitted derivative products with AD Category I banks in India. The investors can also access the domestic market through branches / subsidiaries of Indian banks abroad or branches of foreign banks with Indian presence on a back to back basis.
Change of Currency of Borrowing	It is freely permitted	It is not permitted

Trade Credits in SEZ/FTWZ/DTA

TC can be raised by a unit or a developer in a SEZ including FTWZ for purchase of non-capital and capital goods within an SEZ including FTWZ or from a different SEZ including FTWZ subject to compliance with parameters stated therein. TC transactions in respect of SEZs and DTAs as permitted above should also be in compliance with applicable provisions of SEZ Act, 2005 as amended from time to time.

Reporting Requirements

TC transactions are subject to the reporting requirements on monthly basis and quarterly basis in the prescribed format.

1. Monthly Reporting: AD Category I banks are required to furnish details of TCs like drawal, utilisation, and repayment of TC approved by all its branches, in a consolidated statement, during a month, in Form TC to the Director, Division of International Trade and Finance, Department of Economic Policy and Research, RBI, Central Office, Fort, Mumbai – 400001 through email.

   Suppliers’ credit beyond 180 days and up to one year/three years from the date of shipment for non-capital/capital goods respectively, should also be reported by the AD banks. Further, permissions granted by the AD banks/Regional offices of Reserve Bank for settlement of delayed import dues should also be reported.

2. Quarterly Reporting: AD Category I banks are also required to furnish data on issuance of bank guarantees for TCs by all its branches, in a consolidated statement, at quarterly intervals on the XBRL platform.

Borrowings through Loans/Deposits

1. Indian Companies, other Body Corporates, Indian Proprietary Concerns and Firms can accept fresh deposits from NRI only if the deposit is by way of debit to the NRO account of the lender and the amount deposited does not represent inward remittances or transfer from NRE/FCNR (B) Accounts into the NRO Account of the lender. However, they are permitted to hold and renew on maturity existing deposits received by them on repatriation as well as non- repatriation basis.
2. Resident Individuals are permitted to avail of interest free loans up to US $ 250,000 from their NRI / PIO relative(s) (as defined under the Companies Act, 2013) subject to certain conditions.
3. Special permission of RBI will be required in case where deposits / loans do not fulfill the specified criteria or where the deposits/loans are on repatriation basis in the case of proprietary concerns and firms.
4. Banks can grant loans without any ceiling but subject to usual margin requirements (in Indian Rupees in India and in foreign currency in India or overseas) against NRE and FCNR (B) deposits either to the depositors or third parties in India or overseas.