Saturday, September 25, 2010

Can ECB raised for repayment of Term Loan or Working Capital ?

There are end use restrictions and as of now , ECB cannot be availed for working capital purpose.

ECBs are being permitted by the Government as a source of finance for Indian Corporates for expansion of existing capacity as well as for fresh investment.

END-USE REQUIREMENTS

.(A) External commercial loans are to be utilized for import of capital goods and services (on FOB or CIF basis) and for the project related expenditure in all sectors subject to following conditions :

(a) ECB raised for project-related rupee expenditure must be brought into the country immediately.

(b) ECB raised for import of capital goods and services should be utilized at the earliest and corporates should strictly comply with RBI's extant guidelines on parking ECBs outside till actual imports. RBI would be monitoring ECB proceeds parked outside.

(c) ECB raised is not permitted for investment in stock market or in real estate.

(B) Corporate borrowers will be permitted to raise ECB to acquire ships/vessels from Indian shipyards. (C) Under no circumstances, ECB proceeds will be utilized for -
( i) Investment in stock market; and
(ii) Speculation in real estate.

ECBs only for import of capital goods and project-related rupee expenditure. Such Recycled Funds may not be on lent for the following purposes :

(i) Investment in Real Estate;
(ii) Investment in Stock markets including secondary market trading;
(iii) Working capital purposes;
(iv) General corporate purposes

Corporate’s who have foreign exchange earnings are permitted to raise ECB up to thrice the average amount of annual exports during the previous three years subject to a maximum of USD 200 million without end-use restrictions, i.e. for general corporate objectives excluding investments in stock markets or in real estate.

If you have adequate foreign exchange earnings and you can raise ECB thrice of your annual export earnings without any end use restriction. That is you can use the ECB in such cases to repay your working capital or term loan availed from the bank.

In other scenarios , ECB is not permitted to repay working capital or term loans in India.

1 comment:

  1. Dear Readers,

    If you need further info or clarification on the subject, please revert to me at

    rvsekar2007@gmail.com

    Regards

    R.V.Seckar

    ReplyDelete