{"id":39501,"date":"2022-10-20T12:07:54","date_gmt":"2022-10-20T06:37:54","guid":{"rendered":"https:\/\/www.cagmc.com\/?p=39501"},"modified":"2024-06-01T12:46:18","modified_gmt":"2024-06-01T07:16:18","slug":"external-commercial-borrowing","status":"publish","type":"post","link":"https:\/\/www.cagmc.com\/blog\/external-commercial-borrowing\/","title":{"rendered":"External Commercial Borrowing (ECB) \u2013 A Guidance Note"},"content":{"rendered":"<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\"><img fetchpriority=\"high\" decoding=\"async\" class=\"alignnone wp-image-39506 size-full\" title=\"External Commercial Borrowing\" src=\"https:\/\/www.cagmc.com\/blog\/wp-content\/uploads\/2022\/10\/External-Commercial-Borrowing-1.png\" alt=\"External Commercial Borrowing\" width=\"1200\" height=\"630\" srcset=\"https:\/\/www.cagmc.com\/blog\/wp-content\/uploads\/2022\/10\/External-Commercial-Borrowing-1.png 1200w, https:\/\/www.cagmc.com\/blog\/wp-content\/uploads\/2022\/10\/External-Commercial-Borrowing-1-300x158.png 300w, https:\/\/www.cagmc.com\/blog\/wp-content\/uploads\/2022\/10\/External-Commercial-Borrowing-1-1024x538.png 1024w, https:\/\/www.cagmc.com\/blog\/wp-content\/uploads\/2022\/10\/External-Commercial-Borrowing-1-615x323.png 615w, https:\/\/www.cagmc.com\/blog\/wp-content\/uploads\/2022\/10\/External-Commercial-Borrowing-1-400x210.png 400w, https:\/\/www.cagmc.com\/blog\/wp-content\/uploads\/2022\/10\/External-Commercial-Borrowing-1-292x153.png 292w\" sizes=\"(max-width: 1200px) 100vw, 1200px\" \/>The loan given by non-resident lenders to Indian borrowers who are qualified for the ECB is known as <\/span><span style=\"font-weight: 400;\">External Commercial Borrowing<\/span><span style=\"font-weight: 400;\"> and can be made in INR or foreign currency. The financing is being used for business purposes. The ECB receives funding from international sources or any reputable organization outside of India. The criteria for obtaining the ECB have been streamlined, and it is now more common because it is generally available on simple terms.<\/span><\/p>\n<table style=\"width: 100%;\">\n<tbody>\n<tr>\n<td style=\"border: 1px solid #555;\">\n<p style=\"text-align: justify;\"><b>Table of Content<\/b><\/p>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><a href=\"#of\"><span style=\"font-weight: 400;\">Concept of External Commercial Borrowings<\/span><\/a><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><a href=\"#Benefits\"><span style=\"font-weight: 400;\">Benefits of External Commercial Borrowing<\/span><\/a><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><a href=\"#Various\"><span style=\"font-weight: 400;\">Various Guidelines regarding External Commercial Borrowing<\/span><\/a><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><a href=\"#Non\"><span style=\"font-weight: 400;\">Non- Availability of ECB\u00a0<\/span><\/a><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><a href=\"#to\"><span style=\"font-weight: 400;\">Procedure to obtain Loan Registration Number under ECB<\/span><\/a><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><a href=\"#for\"><span style=\"font-weight: 400;\">Procedure for raising the ECB\u00a0<\/span><\/a><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><a href=\"#and\"><span style=\"font-weight: 400;\">Limitation and Leverage<\/span><\/a><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><a href=\"#The\"><span style=\"font-weight: 400;\">The ECB&#8217;s Reporting<\/span><\/a><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><a href=\"#Takeaway\"><span style=\"font-weight: 400;\">Takeaway<\/span><\/a><\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h2 id=\"of\"><b>Concept of External Commercial Borrowings<\/b><\/h2>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">External Commercial Borrowings are commercial loans made by qualifying resident companies to recognize non-resident businesses that must meet certain requirements such as the Minimum Average Maturity Period (MAMP), approved and prohibited end-uses, maximum All-In-Cost (AIC), and so on.<\/span><\/p>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Obtain Commercial Loans<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Recognized Mortgage Lenders (Non-Resident)\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Qualified Borrowers (Resident)\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">For allowed end use and within established parameters (MAMP, AIC)<\/span><\/li>\n<\/ul>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">The Foreign Exchange Management Act, 1999, and the RBI Master Direction- External Commercial Borrowings, Trade Credits, and Structured Obligations control ECBs (FEMA).<\/span><\/p>\n<h2 id=\"Benefits\"><b>Benefits of External Commercial Borrowing<\/b><\/h2>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">Various benefits of External Commercial Borrowing are:<\/span><\/p>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Comparatively Low-Interest Rates for Domestic Funds<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Chance to access a Substantial Amount of Money<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The money is accessible for a Fair Period.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Companies may obtain ECB through sources that are acknowledged globally, such as banks, export credit organizations, cross-border capital exchanges, etc.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Foreign currencies are one possible form of the ECB. As a result, they give the company access to foreign currency to pay for the import of machinery, among other things.<\/span><\/li>\n<\/ul>\n<h2 id=\"Various\"><b>Various Guidelines regarding External Commercial Borrowing<\/b><\/h2>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">Various guidelines regarding External Commercial Borrowing are as follows:<\/span><\/p>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Any Company that is qualified to receive FDI (Foreign Direct Investment) now qualifies as an eligible borrower under the newly reduced eligibility criteria.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The lender must be from a nation that complies with FATF or IOSCO regulations, including when transferring ECB. If the lender is a person, he or she must own stock in the borrowing company or be authorized to subscribe to bonds or debentures that are listed on an international exchange.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">In addition to INR, ECB is available in any convertible Foreign Currency. When ECB is accessed in foreign currency, it is referred to as ECB denominated in foreign currency.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">When it is accessed in Indian rupees, it is referred to as ECB denominated in INR.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Three years is the minimum average maturity duration. However,\u00a0the typical minimum maturity time varies\u00a0in the following situations:<\/span><\/li>\n<\/ul>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The ECB allows for a five-year repayment period for rupee loans used for working capital and general business purposes<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">If the ECB is using the funds for working capital, general corporate purposes, or NBFCs lending to other businesses for working capital, the minimum average maturity length is 10\u00a0years.<\/span><\/li>\n<\/ul>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">In cases involving foreign currencies, the ECB has defined the benchmark as a commonly used Alternative Reference Rate of a 6month tenor, suitable to the loan currency.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Further, any additional fees, such as prepayment penalties or interest rates, should not exceed 2 percent as they fall outside the all-in cost cap.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The currency of the ECB may change from any foreign currency to Indian rupees, and the exchange rate will depend on whether an agreement for the change was reached between the parties involved or not.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Under the automated procedure, the maximum amount of ECB that may be raised in a fiscal year is up to USD 750 million.<\/span><\/li>\n<\/ul>\n<h2 id=\"Non\"><b>Non- Availability of ECB\u00a0<\/b><\/h2>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">A limited negative list exists for which the ECB is unavailable. The following should be on the list:<\/span><\/p>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Real estate-related activities<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Investment in the capital markets.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Investing in a stock.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Working capital purposes only -ECB raised by foreign equity holders, <\/span><a href=\"https:\/\/www.cagmc.com\/registration-of-an-nbfc-under-equifax\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">NBFC<\/span><\/a><span style=\"font-weight: 400;\"> financing for working capital or general corporate purposes is the exception.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">On-lending to entities for the aforementioned purposes raised ECB, except NBFCs.<\/span><\/li>\n<\/ul>\n<h2 id=\"to\"><b>Procedure to obtain Loan Registration Number under ECB<\/b><\/h2>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">Any ECB loan drawdown should only take place after acquiring the Loan Registration Number (LRN) from the <\/span><span style=\"font-weight: 400;\">RBI<\/span><span style=\"font-weight: 400;\">. Borrowers must submit the ECB form, officially signed and confirmed by a professional, along with the ECB agreement and other papers, to obtain the LRN. It is required to submit the ECB form in duplicate. Approaching the designated AD Category I Bank is required by the borrower.<\/span><\/p>\n<h2 id=\"for\"><b>Procedure for raising the ECB\u00a0<\/b><\/h2>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">If the requirements provided in this framework are fulfilled, all ECB can be raised automatically. When it comes to the approval process:<\/span><\/p>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Borrowers may submit an inspection application to the RBI in the required format (Form ECB) via their AD Category I Bank.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">These circumstances will be evaluated in light of the basic principles, the macroeconomic environment, and the merits of the specific proposals.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">ECB suggestions that exceed a particular threshold limit (which may be amended from time to time) submitted to the Reserve Bank will be referred to the RBI&#8217;s Empowered Committee.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Empowered Committee will include both external and internal members, and in circumstances where the Empowered Committee&#8217;s recommendations are implemented, the RBI will make the final decision.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Entities interested in raising ECB utilizing the automated process should submit a proposal and a completely completed Form ECB to an AD Category I bank.<\/span><\/li>\n<\/ul>\n<h2 id=\"and\"><b>Limitation and Leverage<\/b><\/h2>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">Every fiscal year, all qualified debtors are eligible to use the automated process to raise ECB up to USD 750 million or equivalent. Furthermore, the ECB liability-to-equity ratio for ECB raised via the automated technique for FCY-denominated ECB received from direct foreign equity holders cannot be greater than 7:1. This % will not apply if the sum of all outstanding ECB, including the one that is being offered, is less than $5 million or it&#8217;s equal.<\/span><\/p>\n<h2 id=\"The\"><b>The ECB&#8217;s Reporting<\/b><\/h2>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">Borrowers must use Form ECB 2 Return to report real ECB transactions to the AD Category I bank on a monthly basis.<\/span><\/p>\n<h2 id=\"Takeaway\"><b>Takeaway<\/b><\/h2>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">ECBs will be used as one of the main vehicles to attract investment to India given that the RBI has established industry-specific differences for the automatic route and the approved route to ECB procurement, as well as end-use limits and minimum average maturity lengths. The Indian GDP is anticipated to remain stable because the <a href=\"https:\/\/www.rbi.org.in\/\" target=\"_blank\" rel=\"noopener\">RBI<\/a> now allows ECB earnings to cover loan repayments. At the same time, Indian companies now have broad discretion to seek desperately needed funding from the international market at pleasantly low-interest rates.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The loan given by non-resident lenders to Indian borrowers who are qualified for the ECB is known as External Commercial [&hellip;]<\/p>\n","protected":false},"author":10,"featured_media":39506,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"default","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"set","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[91],"tags":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v24.4 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>External Commercial Borrowing - Goyal Mangal &amp; 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