Tuesday, May 15, 2018

Important Amendments in External Commercial Borrowing – Changes notified on 14.05.2018 by Reserve Bank of India


Important Amendments in External Commercial Borrowing – Changes notified on 14.05.2018 by Reserve Bank of India

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1.               Rationalisation of all-in-cost for ECB under all tracks and Rupee denominated bonds (RDBs)-

With a view to harmonising the extant provisions of Foreign Currency and Rupee ECBs and RDBs, it has been decided to stipulate a uniform all-in-cost ceiling of 450 basis points over the benchmark rate. The benchmark rate will be 6 month USD LIBOR3 (or applicable benchmark for respective currency) for Track I and Track II, while it will be prevailing yield of the Government of India securities of corresponding maturity for Track III (Rupee ECBs) and RDBs. ‘All-in-cost’-

The Meaning of “ All-in-Cost”

The term ‘All-in-Cost’ includes rate of interest, other fees, expenses, charges, guarantee fees whether paid in foreign currency or Indian Rupees (INR) but will not include commitment fees, pre-payment fees / charges, withholding tax payable in INR. In the case of fixed rate loans, the swap cost plus spread should be equivalent of the floating rate plus the applicable spread.

The Meaning of Tracks under ECB

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Presently, ECB can be raised under the following TRACKS.

Track I:
Track II:
Track III:
Medium term foreign currency denominated ECB with minimum average maturity of 3/5 years
Long term foreign currency denominated ECB with minimum average maturity of 10 years.
Indian Rupee (INR) denominated ECB with minimum average maturity of 3/5 years.

2. Expansion of Eligible Borrowers’ list for the purpose of ECB –

It has been decided to permit:

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Housing Finance Companies To Avail ECB

A. Housing Finance Companies, regulated by the National Housing Bank, as eligible borrowers to avail of ECBs under all tracks. Such entities shall have a board approved risk management policy and shall keep their ECB exposure hedged 100 per cent at all times for ECBs raised under Track I.

Port Trusts To Avail ECB

B. Port Trusts constituted under the Major Port Trusts Act, 1963 or Indian Ports Act, 1908 to avail of ECBs under all tracks. Such entities shall have a board approved risk management policy and shall keep their ECB exposure hedged 100 per cent at all times for ECBs raised under Track I.

Companies in Maintenance and Freight Forwarding to Avail ECB

C. Companies engaged in the business of Maintenance, Repair and Overhaul and freight forwarding to raise ECBs denominated in INR only.

3. Revisiting ECB Liability to Equity Ratio provisions

It has been decided to increase the ECB Liability to Equity Ratio for ECB raised from direct foreign equity holder under the automatic route to 7:1. This ratio will not be applicable if total of all ECBs raised by an entity is up to USD 5 million or equivalent. Earlier an ‘ECB liability to equity’ ratio of more than 4:1 needed approvals from the RBI.

4. ECB for Working capital purposes

5.Rationalisation of end-use provisions for ECBs –

It has now been decided to have only a negative list for all tracks that would include the following:

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Negative list for all tracks

Investment in Real Estate
a. Investment in real estate or purchase of land except when used for affordable housing as defined in Harmonised Master List of Infrastructure Sub-sectors6 notified by Government of India, construction and development of SEZ and industrial parks/integrated townships
b. Investment in capital market

c. Equity investment

Additionally for Tracks I and III, the following negative end uses will also apply except when raised from Direct and Indirect equity holders or from a Group company, and provided the loan is for a minimum average maturity of five years:

Additionally for Tracks I and III, the following negative end uses will also apply except when raised from Direct and Indirect equity holders or from a Group company, and provided the loan is for a minimum average maturity of five years:

D. Working capital purposes

e. General corporate purposes

f. Repayment of Rupee loans

Finally, for all Tracks, the following negative end use will also apply: g. On-lending to entities for the above activities from (a) to (f)

Earlier, a positive end-use list is prescribed for Track I and specified category of borrowers, while negative end-use list is prescribed for Track II and III.
The above mentioned changes are in the best interest of letting an entity have easy and hassle free access to ECB

Click here to access the Master Direction on ECB

https://rbidocs.rbi.org.in/rdocs/notification/PDFs/15MDC8CEB9A7BDE64745B9BE1DCEC3293CA1.PDF




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