External Commercial Borrowings (ECB) from the Foreign Equity Holders -Henceforth under Approval Route

RBI/2011-12/204-----A.P. (DIR Series) Circular No. 29--27th September 2011

As per the extant ECB policy, a ‘foreign equity holder’ to be eligible as ‘recognised lender’ under the automatic route would require minimum holding of paid-up equity in the borrower company as set out below:

(i) for ECB up to USD 5 million – minimum paid-up equity of 25 per cent held directly by the lender,

(ii) for ECB more than USD 5 million – minimum paid-up equity of 25 per cent held directly by the lender and debt-equity ratio not exceeding 4:1 (i.e. the proposed ECB does not exceeds four times the direct foreign equity holding).

2. To further rationalize the policy in this regard, the following clarifications are being issued:-

(i) Now onwards the term ‘debt’ in the debt-equity ratio will be replaced with ‘ECB liability’ and the ratio will be known as ‘ECB liability’-equity ratio to make the term signify true position as other borrowings/debt are not considered in working out this ratio;

(ii) The paid-up capital contributed by the foreign equity holder is considered under the extant guidelines for the purpose of calculation of equity for ECBs of or beyond USD 5 million from direct foreign equity holders. Henceforth, besides the paid-up capital, free reserves (including the share premium received in foreign currency) as per the latest audited balance sheet shall be reckoned for the purpose of calculating the equity of the foreign equity holder. Where there are more than one foreign equity holder 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 ECB liability-equity ratio for reckoning quantum of permissible ECB.

(iii) For calculating the ECB liability, not only the proposed borrowing but also the outstanding ECB from the same foreign equity holder lender should be reckoned.

Further guidelines

4. To benefit eligible borrowers, it has been decided, in consultation with the Government of India, to consider the ECB proposals from foreign equity holders (direct/indirect) and group companies under the approval route as under:-

(i) Service sector units, in addition to those in hotels, hospitals and software, could also be considered as eligible borrowers if theloan is obtained from foreign equity holders. This would facilitate borrowing by training institutions, R &D, miscellaneous service companies, etc;

(ii) ECB from indirect equity holders may be considered provided the indirect equity holding by the lender in the Indian company is at least 51 per cent ; and

(iii) ECB from a group company may also be permitted provided both the borrower and the foreign lender are subsidiaries of the same parent.

3. While submitting these proposals, it may be ensured that total outstanding stock of ECBs (including the proposed ECBs) from a foreign equity lender does not exceed 7 times the equity holding, either directly or indirectly of the lender (in case of lending by a group company, equity holdings by the common parent would be reckoned).

4. All other aspects of the ECB policy, such as, maximum permissible limit per company per financial year under the automatic route, eligible borrower, end-use, all-in-cost ceiling, average maturity period, prepayment, refinancing of existing ECB and reporting arrangements shall remain unchanged

External Commercial Borrowings (ECB) in Renminbi (RMB)- Under Approval Route

RBI/2011-12/205-A.P. (DIR Series) Circular No. 30- 30th September 2011

Attention of Authorized Dealer Category-I (AD Category-I) banks is invited to the Foreign Exchange Management (Borrowing or lending in foreign exchange) Regulations, 2000, notified vide Notification No. FEMA 3/2000-RB dated May 3, 2000, amended from time to time, the Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2000 notified vide Notification No. FEMA.14/2000-RB dated May 3, 2000, amended from time to time and the A.P. (DIR Series) Circular No. 5 dated August 1, 2005, amended from time to time relating to the External Commercial Borrowings (ECB).

2. Considering the specific needs of the infrastructure sector, the existing ECB policy has been reviewed in consultation with the Government of India and it has been decided to allow Indian companies which are in the infrastructure sector, where “infrastructure” is as defined under the extant guidelines on External Commercial Borrowings (ECB), to avail of ECBs in Renminbi (RMB), under the approval route, subject to an annual cap of USD one billion pending further review.

3. Once approved, the approval of the Reserve Bank will be valid for a period of three months from the date of issue of the approval letter and the loan agreement should be executed within the validity period. The company may thereafter submit the completed Form 83 to the Department of Statistics and Information Management (DSIM), Reserve Bank of India for allotment of loan registration number (LRN) within seven days (from the date of signing the loan agreement between the borrower and the lender). In case the borrower fails to obtain LRN within the above period, the approval of the Reserve Bank will stand cancelled.

4. AD Category- I bank will be permitted to open Nostro accounts in Renminbi (RMB). The designated AD – Category I bank shall monitor the end-use of funds and bank(s) in India will not be permitted to provide any form of guarantee(s). All other conditions of ECB, such as eligible borrower, recognized lender, all-in-cost, average maturity, prepayment, refinancing of existing ECB and reporting arrangements shall remain unchanged and shall be complied with.

Unauthorised Overseas forex trading through electronic / internet trading portals- Offence under FEMA

RBI/2011-12/262----A.P. (DIR Series) Circular No. 46 dated 18 November 2011

Attention of the Authorised Dealer Category – I (AD Category – I) banks is invited to A.P. (DIR Series) Circular No. 53 dated April 07, 2011 wherein AD Category I banks were advised to exercise due caution and be extra vigilant in respect of the margin payments being made by the public for online forex trading transactions through credit cards / deposits in various accounts maintained with banks in India. Further, AD Category-I banks were also advised to exercise due caution in respect of the accounts being opened in the name of individuals or proprietary concerns at different bank branches for collecting the margin money, investment money, etc. in connection with such transactions.

2. It has been observed that overseas foreign exchange trading has been introduced on a number of internet /electronic trading portals luring the residents with offers of guaranteed high returns based on such forex trading. The advertisements by these internet / online portals exhort people to trade in forex by way of paying the initial investment amount in Indian Rupees.

Some companies have reportedly engaged agents who personally contact people to undertake forex trading/ investment schemes and entice them with promises of disproportionate / exorbitant returns. Most of the forex trading through these portals are done on a margining basis with huge leverage or on an investment basis, where the returns are based on forex trading.

The public is being asked to make the margin payments for such online forex trading transactions through credit cards / deposits in various accounts maintained with banks in India. It is also observed that accounts are being opened in the name of individuals or proprietary concerns at different bank branches for collecting the margin money, investment money, etc.

It is again reiterated that AD Category – I banks should exercise due caution and be extra vigilant in respect of the transactions that require residents to make margin payments for online forex trading transactions through credit cards / deposits in various accounts maintained with banks in India.

It is clarified that any person resident in India collecting and effecting / remitting such payments directly /indirectly outside India would make himself/ herself liable to be proceeded against with for contravention of the Foreign Exchange Management Act (FEMA), 1999 besides being liable for violation of regulations relating to Know Your Customer (KYC) norms / Anti Money Laundering (AML) standards.

Reporting of issue / transfer of Participat​ing interest/r​ight in Oil Fields to a Non Resident as an FDI Transactio​n

RBI through its A.P. (DIR Series) Circular No. 45 dated 16 November, 2011 notified the FEMA (Transfer of Issue of Security by a PersonResident outside India) Regulations, 2000.

In terms of the said regulations the transfer of equity shares / fullyand mandatorily convertible debentures/ fully and mandatorilyconvertible preference shares (hereinafter referred to as ‘shares’) of
an Indian company, from a person resident outside India (non-resident)to a person resident in India (resident) or vice versa, has to bereported to an AD Bank within 60 days of transactions.

Further, thereceipt of consideration for issue of shares as well as the issue of shares of an Indian company, to a non-resident has to be reported toRBI through an AD Bank within 30 days of the transaction.

Further it has decided, to treat the issue / transfer of‘participating interest/ rights’ in oil fields to a non- resident asForeign Direct Investment (FDI) transaction under the extant FDI policy and the FEMA regulations.

And these transactions have to be reported as FDI transactions in terms of the provisions of Regulations 9 and 10 of the Foreign Exchange Management (Transfer of Issue of Security by a Person
Resident outside India) Regulations, 2000 notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended.

Accordingly, transfer of ‘participating interest/ rights’ will be reported as ‘other’ category under Para 7 of revised Form FC-TRS as given in the Annex and issuance of ‘participating interest/ rights’
will be reported as ‘other’ category of instruments under Para 4 of Form FC-GPR.

ECB BY MICRO FINANCE INSTITUTIONS (MFIs) , NGO's and NBFC MIF's NOW UNDER AUTOMATIC ROUTE

 NOW , ECB CAN BE AVAILED BY MICRO FINANCE INSTITUTIONS (MFIs) , NGO's and NBFC MIF's NOW UNDER AUTOMATIC ROUTE !!!

(i)                  Eligible Borrower:

The following MFIs engaged in micro finance activities shall be considered as eligible borrowers to avail of ECBs:-

ü  MFIs registered under the Societies Registration Act, 1860;

ü  MFIs registered under Indian Trust Act, 1882;

ü  MFIs registered either under the conventional state-level cooperative acts, the national level multi-state cooperative legislation or under the new state-level mutually aided cooperative acts (MACS Act) and not being a co-operative bank;

ü  Non-Banking Financial Companies (NBFCs) categorized as ‘Non Banking Financial Company-Micro Finance Institutions’ (NBFC-MFIs) and complying with the norms prescribed as per circular DNBS.CC.PD.No. 250/03.10.01/2011-12 dated December 02, 2011; Further, under the extant FDI policy, ‘leasing and finance’ is one of the 18 NBFC activities wherein FDI up to 100 per cent is permitted under automatic route, subject to minimum capitalisation norms. It is hereby clarified that FDI is permitted only in ‘financial leases’ (financial leasing activity) and not in ’operating leases’ (operating leasing activity). ( RefRBI/2011-12/542
 A. P. (DIR Series) Circular No.121dated 8 May 2012) and

ü  Companies registered under Section 25 of the Companies Act, 1956 and involved in micro finance activity.

(ii) Borrowing relationship and fit and proper status:

Further, the MFIs registered as societies, trusts and co-operatives and engaged in micro finance

• should have a satisfactory borrowing relationship for at least 3 years with a scheduled commercial bank authorized to deal in foreign exchange; and

• would require a certificate of due diligence on `fit and proper’ status of the Board/Committee of Management of the borrowing entity from the designated Authorized Dealer (AD) bank.

(iii) Recognized lenders

ECB funds should be routed through normal banking channels. NBFC-MFIs will be permitted to avail of ECBs from multilateral institutions, such as IFC, ADB etc./ regional financial institutions/international banks / foreign equity holders and overseas organizations.

Companies registered under Section 25 of the Companies Act and engaged in micro finance will be permitted to avail of ECBs from international banks, multilateral financial institutions, export credit agencies, foreign equity holders, overseas organizations and individuals.

Other MFIs will be permitted to avail of ECBs from international banks, multilateral financial institutions, export credit agencies, overseas organizations and individuals. Overseas organizations and individuals complying with following safeguards may lend ECB

a) Overseas organisations planning to extend ECB would have to furnish a certificate of due diligence from an overseas bank which in turn is subject to regulation of host-country regulator and adheres to Financial Action Task Force (FATF) guidelines to the designated AD. The certificate of due diligence should comprise the following (i) that the lender maintains an account with the bank for at least a period of two years, (ii) that the lending entity is organized as per the local law and held in good esteem by the business/local community and (iii) that there is no criminal action pending against it.

b) Individual Lender has to obtain a certificate of due diligence from an overseas bank indicating that the lender maintains an account with the bank for at least a period of two years. Other evidence /documents, such as audited statement of account and income tax return which the overseas lender may furnish need to be certified and forwarded by the overseas bank. Individual lenders from countries wherein banks are not required to adhere to Know Your Customer (KYC) guidelines are not permitted to extend ECB.

(iv) Permitted End-use: The designated AD must ensure that the ECB proceeds are utilised for lending to self-help groups or for micro-credit or for bonafide micro finance activity including capacity building.

.(v) Amount of ECB : With a view to ensure minimization of systemic risk, the maximum amount of foreign currency borrowings of a borrower is capped at USD 10 million during a financial year.

3. It has also been decided that Non-Government Organisations (NGOs) engaged in micro finance activities can avail of ECB up to USD 10 million or equivalent per financial year under the automatic route as against the present limit of USD 5 million or equivalent per financial year. All other conditions as detailed in our A.P. (DIR Series) Circular No. 40 dated April 25, 2005 remain unchanged.

4. Other ECB Parameters :

All other ECB parameters such as minimum average maturity, all-in-cost ceilings, restrictions on issuance of guarantee, choice of security, parking of ECB proceeds, prepayment, refinancing of ECB, reporting arrangements under the Automatic Route should be complied with by MFIs/NGOs availing ECBs. The designated AD has to certify the status of the borrower as eligible and involved in micro finance and ensure at the time of draw down that the forex exposure of the borrower is fully hedged.

Compounding of Offences under FEMA -Delay in reporting to RBI - Now delegated to the Regional RBI

In a welcome step, RBI has now delegated powers to Regional Offices of RBI to condone the delay in respect of filing , reportin and issues shares under FDI .

In order to facilitate the operational convenience, RBI vide its APDIR Circular No.57 dated December 13, 2011 decided to delegate the powers to the Regional Offices of the Reserve Bank of India to compound the contraventions of FEMA involving;

· delay in reporting of inward remittance
· delay in filing of form FC-GPR after allotment of shares and 
· delay in issue of shares beyond 180 days

All other applications (for violations of substantial provisions, ECB norms, etc) may be submitted to the Compounding Authority, Cell for Effective implementation of FEMA (CEFA), Foreign Exchange Department, The Reserve Bank of India, Mumbai.

Further, under the existing process there is no uniformity in submitting the required details with supporting documents along with the compounding application. This results in avoidable correspondence between Reserve Bank and the applicant. To avoid this kind of delay, now RBI has prescribed the information and documents need to be submitted along with application.

This move will help the Company to save considerable cost and time in the compounding process.