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External Commercial Borrowings (ECB) Policy Revised framework
December, 01st 2015

A.P. (DIR Series) Circular No.32

November 30, 2015


All Authorised Dealer Category – I Banks

Madam/ Sir

External Commercial Borrowings (ECB) Policy – Revised framework

Attention of Authorised Dealer Category – I (AD Cat I) banks is invited to A.P. (DIR Series) Circular No. 5 dated August 1, 2005 containing the basic framework under which eligible resident entities can raise External Commercial Borrowings (ECB). Subsequent to issuance of this circular, the ECB framework has been incrementally calibrated taking into account the emerging financing needs of the Indian entities and the macroeconomic developments, by bringing more resident entities as eligible borrowers, recognizing more entities as lenders, expanding end-uses, etc., besides periodically reviewing the All-in-Cost (AIC) for such borrowings. Special carve outs were also made to take care of sector specific needs.

2. As sufficient time has passed since the extant ECB framework was operationalised, a need was felt to undertake a review based on the experience gained in administering the ECB regime and the current financing ecosystem which, inter alia, allows issuance of Indian Rupee (INR) denominated bonds overseas by a wide set of borrowers. Accordingly, a draft of the proposed ECB framework was placed in the public domain on September 23, 2015 for wider consultation. Based on the responses received and, in consultation with the Government of India, a revised ECB framework based on the following overarching principles has been finalised:

  1. A more liberal approach, with fewer restrictions on end uses, higher all-in-cost ceiling, etc. for long term foreign currency borrowings as the extended term makes repayments more sustainable and also minimizes roll-over risks for the borrower;

  2. A more liberal regime for INR denominated ECBs where the currency risk is borne by the lender;

  3. Expansion of the list of overseas lenders to include long-term lenders, such as, Insurance Companies, Pension Funds, Sovereign Wealth Funds;

  4. Only a small negative list of end-use restrictions applicable in case of long-term ECB and INR denominated ECB;

  5. Alignment of the list of infrastructure entities eligible for ECB with the Harmonised List of the Government of India.

3. The framework for ECB, as a means to attract flow of funds from abroad will continue to be a major tool to calibrate our policy towards capital account management in response to evolving macroeconomic situation. These guidelines will be reviewed after one year based on the experience and evolving macro-economic situation.

4. The revised ECB framework will comprise the following three tracks:

Track I : Medium term foreign currency denominated ECB with Minimum Average Maturity (MAM) of 3/5 years.
Track II : Long term foreign currency denominated ECB with MAM of 10 years.
Track III : Indian Rupee denominated ECB with MAM of 3/5 years.

5. The guidelines for the revised ECB framework specifying the parameters and other terms & conditions are set out in the Annex to this Circular. It may be noted that these parameters will apply in totality and not on a standalone basis. Criteria for raising ECB under both the routes, viz., the automatic route where entities do not require the prior approval of the Reserve Bank for raising ECB and the approval route where entities can raise ECB only with the prior approval of the Reserve Bank are also given in the Annex.

6. The primary responsibility for ensuring that the ECB is in compliance with the applicable guidelines is that of the borrower concerned. Any contravention of the applicable provisions of ECB guidelines will invite penal action under the Foreign Exchange Management Act 1999 (FEMA). The designated AD Cat I bank is also expected to ensure compliance with applicable ECB guidelines by their constituents.

7. For dissemination of information related to ECBs details, such as, the name of the borrower, amount, purpose and maturity of ECB contracted under the automatic and the approval routes shall be put on the Reserve Bank’s website, on a monthly basis, with a lag of one month to which it relates.

8. Entities raising ECB under extant framework can raise the said loans by March 31, 2016 provided the agreement in respect of the loan is already signed by the date the new framework comes into effect. For raising of ECB under the following carve outs, the borrowers will, however, have time up to March 31, 2016 to sign the loan agreement and obtain the Loan Registration Number (LRN) from the Reserve Bank by this date:

  1. ECB facility for working capital by airlines companies;

  2. ECB facility for consistent foreign exchange earners under the USD 10 billion Scheme; and

  3. ECB facility for low cost affordable housing projects (low cost affordable housing projects as defined in the extant Foreign Direct Investment policy)

9. Involvement of Indian banks and their overseas branches/subsidiaries in relation to ECBs to be raised by Indian entities will be subject to prudential guidelines issued by the Department of Banking Regulation (DBR) of the Reserve Bank. Further, overseas branches/subsidiaries of Indian banks will not be permitted as lenders under Track II and III.

10. The new ECB framework will come into force from the date of publication, in the Official Gazette, of the relative Regulations issued under FEMA. These Regulations are being issued separately.

11. Authorised Dealer banks may bring the contents of this Circular to the notice of their constituents and customers.

12. The directions contained in this Circular has been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions /approvals, if any, required under any other law.

Yours faithfully,

(B P Kanungo)
Principal Chief General Manager

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