Revised ECB Regulations

Reserve Bank of India (RBI) on 17 December 2018 had introduced new regulation namely Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 for borrowing and lending between a person resident in India and a person resident outside India. The said regulation supersedes following regulations:

· Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000

·  Foreign Exchange Management (Borrowing And Lending In Rupees) Regulations, 2000

·  Regulation 21 of Foreign Exchange Management (Borrowing And Lending In Rupees) Regulations, 2000 i.e. pertaining to Foreign Currency Convertible Bonds (FCCBs)

The glimpse of the amendments pertaining to External Commercial Borrowing (ECB) is mentioned below:

1.      Entities which can receive ECB 

i.      “Indian Entity” means a Company incorporated under the Companies Act, 2013, as amended from time to time, or a Limited Liability Partnership (LLPs) formed and registered in India under the Limited Liability Partnership Act, 2008

 ii.      Thus, Companies and LLPs are eligible to receive External Commercial Borrowing. 

2.      Currency: 

ECB can be availed in freely convertible foreign currency as well as in Indian Rupees or any other currency as specified by the Reserve Bank

3.      Form of ECB: 

 Forms as prescribed by RBI.  Certain hybrid instruments, such as optionally convertible debentures, presently covered under ECB, would be governed by specific hybrid instruments’ Regulations

4.      Eligible Borrower:

An entity eligible to receive FDI including start-ups will be recognized as the eligible borrower. Reserve Bank may specify any other entity/sector as the eligible borrower. Thus, Companies and LLPs eligible to receive FDI including start-ups can avail ECB 

5.      Lender:

a.       Resident of Financial Action Task Force (FATF) or International Organization of Securities  Commission’s (IOSCO) compliant country

b.      Multilateral and Regional Financial Institutions where India is a member country will also be considered as recognized lenders. RBI may specify any other lender/ set of lenders.

Resident includes both Company and individual. Thus, a Company which is an eligible borrower can even take the loan from its director/shareholder if the same is resident of FATF or IOSCO compliant country and subject to certain conditions 

6.      Minimum average Maturity: 

Minimum average maturity will be 3 years. RBI may specify different average   maturity for different parameters

7.      All in cost:

For foreign currency denominated ECB- 450 basis point over 6 months LIBOR or 450 basis point over benchmark for the respective currency.  

e.g. 4.5% (Basis point) + 2.87% (6 month Libor as on 28 December 2018) = 7.37

For INR denominated ECB - 450 basis points per annum over the prevailing yield of the Government of India securities of the corresponding maturity. RBI may specify different limits

e.g. 4.5% (Basis point) + 7.26% (10-Year Government Securities Par Yield as on 21 December 2018) = 11.76%

8. End Use:  

• Borrowed funds will not be used for:
• chit fund or Nidhi Company;
• Investment in capital market including margin trading and derivatives;
• Agricultural or plantation activities;
• Real estate activity or construction of farmhouses; and
• Trading in Transferable Development Rights (TDR)

9. Individual Limits on Borrowing:

For Startups - USD 3 million per financial year and for others - USD 750  million per financial year. RBI may prescribe different limits

10. Hedging:

      Not yet specified. RBI may stipulate hedging requirements.