Cancellation of LRN & Change in the end-use of ECB proceeds- Under RBI ECB Guidlines

Procedure for Reporting Cancellation of LRN & Change in the end-use of ECB proceeds- Under RBI ECB Guidlines

As per the extant ECB procedures any request for cancellation of Loan Registration Number (LRN) given by the Department of Statistics and Information Management (DSIM), Reserve Bank of India or change in permissible end-use for an existing ECB is required to be referred by the AD Category-I bank to the Foreign Exchange Department, Central Office, Reserve Bank of India for necessary approval.
3. As a measure of simplification of the existing procedures, it has been decided to delegate powers to the designated AD category-I banks to approve the following requests from the ECB borrowers, subject to specified conditions:

a) Cancellation of LRN

The designated AD Category-I bank may directly approach DSIM for cancellation of LRN for ECBs availed, both under the automatic and approval routes, subject to fulfilment of the following conditions:-
(i) no draw down for the said LRN has taken place; and
(ii) the monthly ECB-2 returns till date in respect of the LRN have been submitted to DSIM.
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b) Change in the end-use of ECB proceeds

The designated AD Category-I bank may approve requests from ECB borrowers for change in end-use in respect of ECBs availed under the automatic route, subject to the following conditions:-
(i) the proposed end-use is permissible under the automatic route as per the extant ECB guidelines;
(ii) there is no change in the other terms and conditions of the ECB;
(iii) the ECB is in compliance with the extant guidelines; and
(iv) the monthly ECB-2 returns till date in respect of the LRN have been submitted to DSIM.

The AD Category – I bank shall continue to monitor the utilization of end-use proceeds and changes in the end-use should be promptly reported to DSIM, RBI in Form 83. However, change in the end-use of ECBs availed under the approval route will continue to be referred to the Foreign Exchange Department, Central Office, Reserve Bank of India, as hitherto.

4. The above modifications to the ECB guidelines will come into force with immediate effect. All other aspects of the ECB policy, such as, USD 750 million limit per company per financial year under the automatic route, eligible borrower, recognized lender, end-use, all-in-cost ceiling, average maturity period, prepayment, refinancing of existing ECB and reporting arrangements shall remain unchanged.

Ref: RBI Master Circular -: RBI/2011-12/366  A.P. (DIR Series) Circular No.69 dated 25 January 2012

Deffered Payment For importing Machinery by Indian Importers

There is no specific guidelines for treating imported machinery as ECB.

In the case

M/s Kerns Aero Products Private Limited was allowed by FIPB to issue shares for the value of machinery imported to the supplier .

 

For the value of imported machinery , one has to make payment within the stipulated time else it will be an offense under FEMA.

 

As per terms of the extant regulations, remittances against imports should be completed not later than six months from the date of shipment, except in cases where amounts are withheld towards guarantee of performance, etc.

Imported machinery payment if not paid within 6 months of import , then Deferred payment arrangements, including suppliers and buyers credit, providing for payments beyond a period of six months from date of shipment up to a period of less than three years, are treated as trade credits for which the procedural guidelines laid down in the Master Circular for External Commercial Borrowings and Trade Credits may be followed.

 Under ECB Guidelines ,one can import machinary and can make payment within 3 years and this will treated as trade credit.

TRADE CREDITS FOR IMPORTS INTO INDIA

Trade Credits’ (TC) refer to credits extended for imports directly by the overseas supplier, bank and financial institution for maturity of less than three years. Depending on the source of finance, such trade credits include suppliers’ credit or buyers’ credit. Suppliers’ credit relates to credit for imports into India extended by the overseas supplier, while buyers’ credit refers to loans for payment of imports into India arranged by the importer from a bank or financial institution outside India for maturity of less than three years. It may be noted that buyers’ credit and suppliers’ credit for three years and above come under the category of External Commercial Borrowings (ECB) which are governed by ECB guidelines.
a) Amount and Maturity
AD banks are permitted to approve trade credits for imports into India up to USD 20 million per import transaction for imports permissible under the current Foreign Trade Policy of the DGFT with a maturity period up to one year (from the date of shipment). For import of capital goods as classified by DGFT, AD banks may approve trade credits up to USD 20 million per import transaction with a maturity period of more than one year and less than three years (from the date of shipment). No roll-over/extension will be permitted beyond the permissible period.
AD banks shall not approve trade credit exceeding USD 20 million per import transaction.
b) All-in-cost Ceilings

The all-in-cost ceilings include arranger fee, upfront fee, management fee, handling/ processing charges, out of pocket and legal expenses, if any.

100% FDI is Allowed Under Approval Route in Limited Liability Partnerships (LLPs)

FDI in Limited Liability Partnerships (LLPs): FDI in LLPs is permitted, subject to the following conditions:

(a) FDI will be allowed, through the Government approval route, only in LLPs operating in sectors/activities where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance conditions (such as 'Non Banking Finance Companies' or 'Development of Townships, Housing, Built-up infrastructure and Construction-development projects' etc.).

(b) LLPs with FDI will not be allowed to operate in agricultural/plantation activity, print media or real estate business. 16

(c) An Indian company, having FDI, will be permitted to make downstream investment in an LLP only if both-the company, as well as the LLP- are operating in sectors where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance conditions.

(d) LLPs with FDI will not be eligible to make any downstream investments.

(e) 100% FDI is Allowed Under Approval Route in Limited Liability Partnerships (LLPs)will be allowed only by way of cash consideration, received by inward remittance, through normal banking channels or by debit to NRE/FCNR account of the person concerned, maintained with an authorized dealer/authorized bank.

(f) Investment in LLPs by Foreign Institutional Investors (FIls) and Foreign Venture Capital Investors (FVCIs) will not be permitted. LLPs will also not be permitted to avail External Commercial Borrowings (ECBs).

(g) In case the LLP with FDI has a body corporate that is a designated partner or nominates an individual to act as a designated partner in accordance with the provisions of Section 7 of the LLP Act, 2008, such a body corporate should only be a company registered in India under the Companies Act, 1956 and not any other body, such as an LLP or a trust.

(h) For such LLPs, the designated partner "resident in India", as defined under the

'Explanation' to Section 7(1) of the LLP Act, 2008, would also have to satisfy the definition of "person resident in India", as prescribed under Section 2(v)(i) of the Foreign Exchange Management Act, 1999.

(i) The designated partners will be responsible for compliance with all the above conditions and also liable for all penalties imposed on the LLP for their contravention, if any.

(j) Conversion of a company with FDI, into an LLP, will be allowed only if the above stipulations are met and with the prior approval of FIPB/Government.

Ref: Department of Industrial Policy and Promotion - Consolidated FDI Policy-Circular No 02/2011

Revision in Average Maturity Period of ECB

a) ECB up to USD 20 million or equivalent in a financial year with minimum average maturity of three years; and

b) ECB above USD 20 million and up to USD 750 million or equivalent with minimum average maturity of five years.

 This notification came consequent to the enhancement in ECB limits by RBI for eligible borrowers under the automatic route up to USD 750 million or equivalent per financial year per borrower for permissible end-uses under the automatic route vide A.P. (DIR Series) Circular No. 27 dated September 23, 2011.

 It is also clarified that the eligible borrowers under the automatic route can raise Foreign Currency Convertible Bonds (FCCBs) up to USD 750 million or equivalent per financial year for permissible end-uses.

 Further the Corporate in specified service sectors, viz. hotel, hospital and software, can raise FCCBs up to USD 200 million or equivalent for permissible end-uses during a financial year subject to the condition that the proceeds of the ECB should not be used for acquisition of land.

 And the ECB / FCCB availed of for the purpose of refinancing the existing outstanding FCCB will be reckoned as part of the limit of USD 750 million available under the automatic route.

100% FDI FOR SINGLE BRAND RETAIL UNDER GOVERNMENT APPROVAL ROUTE

Present Position:

Foreign Direct Investment (FDI), in retail trade, is prohibited except in single brand productretail trading, in which FDI, up to 51% is permitted, subject to conditions specified underparagraph 6.2.16.4 of 'Circular 2 of 2011- Consolidated FDI Policy'.

Revised Position:

The Government of India has reviewed the extant policy on FDI and decided that FDI, up to100%, under the government approval route, would be permitted in Single-Brand Product Retail Trading, subject to specified conditions, as indicated in paragraph 3.0 below.

(1) Foreign Investment in Single Brand product retail trading is aimed at attracting investments in production and marketing, improving the availability of such goods for the consumer, encouraging increased sourcing of goods from India, and enhancing competitiveness of Indian enterprisesthrough access to global designs, technologies and management practices.

(2) FDI in Single Brand product retail trading would be subject to the following conditions:

·        Products to be sold should be of a 'Single Brand' only.

·        Products should be sold under the same brand internationally l.e. products should be sold under the same brand in one or more countries other than India.

·         'Single Brand' product-retail trading would cover only products which are branded during manufacturing.

·        The foreign investor should be the owner of the brand.

·         In respect of proposals involving FDI beyond 51%, mandatory sourcing of at least 30% of the value of products sold would have to be done from Indian 'small industries/ Village and cottage industries, artisans and craftsmen'.

·        'Small industries' would be defined as industries which have a total investment in plant & machinery not exceeding US $ 1.00 million. This valuation refers to the value at the time of installation, without providing for depreciation. Further, if at any point in time, this valuation is exceeded, the industry shall not qualify as a 'small industry' for this purpose. 'Village industry' shall have the meaning as defined under the Khadi and Village Industries Commission Act, 1956, as amended from time to time. The compliance of this condition will be ensured through self certification by the company, to be subsequently checked, by statutory auditors, from the duly certified accounts, which the company will be required to maintain.

3. Application seeking permission of the Government for FDI in retail trade of 'Single Brand' products would be made to the Secretariat for Industrial Assistance (SIA) in the Department of Industrial Policy & Promotion. The\application would specifically indicate the product/ product categories which are proposed to be sold under a 'Single Brand'. Any addition to the product/product categories to be sold under 'Single Brand' would require a fresh approval of the Government.

(4) Applications would be processed in the Department of Industrial Policy & Promotion, to determine whether the products proposed to be sold satisfy the notified guidelines, before being considered by the FIPB for Government approval.