1. ECB refer to commercial loans [in the form of bank loans, buyers’ credit, suppliers’ credit, securitised instruments (e.g. floating rate notes and fixed rate bonds)] availed from non-resident lenders with minimum average maturity of 3 years. ECB can be accessed under two routes, viz., (i) Automatic Route outlined in paragraph 1(A) and (ii) Approval Route indicated in paragraph 1(B).

ECBs can be accessed under two routes, viz.,

1. Automatic Route and
   
   
2. Approval Route.

I.(A) AUTOMATIC ROUTE

The following types of proposals for ECBs are covered under the Automatic Route.

1. Eligible borrowers:
   
   
   1. Corporates, including those in the hotel, hospital, software sectors (registered under the Companies Act, 1956) and Infrastructure Finance Companies (IFCs) except financial intermediaries, such as banks, financial institutions (FIs), Housing Finance Companies (HFCs) and Non-Banking Financial Companies (NBFCs) are eligible to raise ECB. Individuals, Trusts and Non-Profit making organizations are not eligible to raise ECB.
   
   
   2. Units in Special Economic Zones (SEZ) are allowed to raise ECB for their own requirement.
   
   
   3. Non-Government Organizations (NGOs) engaged in micro finance activities are eligible to avail of ECB. Such NGOs (i) should have a satisfactory borrowing relationship for at least 3 years with a scheduled commercial bank authorized to deal in foreign exchange in India and (ii) 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 AD bank.
   
   
2. Recognised Lenders:
   
   

   Borrowers can raise ECB from internationally recognized sources such as

   1. international banks
   2. international capital markets
   3. multilateral financial institutions (such as IFC, ADB, CDC, etc.) / regional financial institutions and Government owned development financial institutions, (iv) export credit agencies
   4. suppliers of equipments
   5. foreign collaborators
   6. foreign equity holders (other than erstwhile Overseas Corporate Bodies (OCBs).
   
   
3. Amount and Maturity:
   
   
   1. The maximum amount of ECB which can be raised by a corporate other than those in the hotel, hospital and software sectors is USD 750 million or its equivalent during a financial year.
   
   
   2. Corporates in the services sector viz. hotels, hospitals and software sector are allowed to avail of ECB up to USD 200 million or its equivalent in a financial year for meeting foreign currency and/ or Rupee capital expenditure for permissible end-uses. The proceeds of the ECBs should not be used for acquisition of land..
   
   
   3. ECB up to USD 20 million or its equivalent in a financial year with minimum average maturity of three years.
   
   
   4. ECB above USD 20 million or equivalent and up to USD 750 million or its equivalent with a minimum average maturity of five years.
   
   
   5. NGOs engaged in micro finance activities can raise ECB up to USD 5 million or its equivalent during a financial year. Designated AD bank has to ensure that at the time of drawdown the forex exposure of the borrower is fully hedged.
   
   
   
   
4. All-in-cost ceilings:
   
   All-in-cost includes rate of interest, other fees and expenses in foreign currency except commitment fee, pre-payment fee, and fees payable in Indian Rupees. The payment of withholding tax in Indian Rupees is excluded for calculating the all-in-cost.
   
   The all-in-cost ceilings for ECB are reviewed from time to time. The following ceilings are valid until reviewed: .
   
   

   Average Maturity Period	All-in-cost Ceilings over 6 month LIBOR*
   Three years and up to five years	350 basis points
   More than five years	500 basis points

   
   *for the respective currency of borrowing or applicable benchmark In the case of fixed rate loans, the swap cost plus margin should be the equivalent of the floating rate plus the applicable margin.
   
   
   
5. End-use:
   
   
   1. ECB can be raised for investment [such as import of capital goods (as classified by DGFT in the Foreign Trade Policy), new projects, modernization/expansion of existing production units] in real sector - industrial sector including small and medium enterprises (SME), infrastructure sector and specified service sectors namely hotel, hospital, software in India.
   
   
   2. Overseas direct investment in Joint Ventures (JV)/ Wholly Owned Subsidiaries (WOS) subject to the existing guidelines on Indian Direct Investment in JV/ WOS abroad.
   
   
   3. Utilization of ECB proceeds is permitted for first stage acquisition of shares in the disinvestment process and also in the mandatory second stage offer to the public under the Government’s disinvestment programme of PSU shares.
   
   
   4. For lending to self-help groups or for micro-credit or for bonafide micro finance activity including capacity building by NGOs engaged in micro finance activities.
   
   
   5. Payment for Spectrum Allocation.
   
   
   6. Infrastructure Finance Companies (IFCs) i.e. Non Banking Financial Companies (NBFCs) categorized as IFCs by the Reserve Bank, are permitted to avail of ECBs, including the outstanding ECBs, up to 50 per cent of their owned funds, for on-lending to the infrastructure sector as defined under the ECB policy, subject to their complying with the following conditions: i) compliance with the norms prescribed in the DNBS Circular DNBS.PD.CCNo.168 / 03.02.089 / 2009-10 dated February 12, 2010 ii) hedging of the currency risk in full. Designated Authorised Dealer should ensure compliance with the extant norms while certifying the ECB application.
   
   
   
6. End-uses not permitted :
   
   
   1. For on-lending or investment in capital market or acquiring a company (or a part thereof) in India by a corporate [investment in Special Purpose Vehicles (SPVs), Money Market Mutual Funds (MMMFs), etc., are also considered as investment in capital markets).
      
      
   2. for real estate sector
   
   
   3. for working capital, general corporate purpose and repayment of existing Rupee loans.
   
   
   
7. Guarantees:
   
   Issuance of guarantee, standby letter of credit, letter of undertaking or letter of comfort by banks, Financial Institutions and Non-Banking Financial Companies (NBFCs) from India relating to ECB is not permitted.
   
   
   
8. Security:
   
   The choice of security to be provided to the lender/supplier is left to the borrower. However, creation of charge over immoveable assets and financial securities, such as shares, in favour of the overseas lender is subject to Regulation 8 of Notification No. FEMA 21/RB-2000 dated May 3, 2000 and Regulation 3 of Notification No. FEMA 20/RB-2000 dated May 3, 2000, respectively, as amended from time to time. AD Category - I banks have been delegated powers to convey ‘no objection’ under the Foreign Exchange Management Act (FEMA), 1999 for creation of charge on immovable assets, financial securities and issue of corporate or personal guarantees in favour of overseas lender / security trustee, to secure the ECB to be raised by the borrower.
   
   
9. Procedure:
   
   Borrowers may enter into loan agreement complying with the ECB guidelines with recognised lender for raising ECB under Automatic Route without the prior approval of the Reserve Bank. The borrower must obtain a Loan Registration Number (LRN) from the Reserve Bank of India before drawing down the ECB. The procedure for obtaining LRN is detailed in para II (i) (b).

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I.(B) APPROVAL ROUTE

1. Eligible borrowers:
   
   The following types of proposals for ECB are covered under the Approval Route:
   
   
   1. On lending by the EXIM Bank for specific purposes will be considered on a case by case basis.
   2. Banks and financial institutions which had participated in the textile or steel sector restructuring package as approved by the Government are also permitted to the extent of their investment in the package and assessment by the Reserve Bank based on prudential norms. Any ECB availed for this purpose so far will be deducted from their entitlement.
   3. ECB with minimum average maturity of 5 years by Non-Banking Financial Companies (NBFCs) from multilateral financial institutions, reputable regional financial institutions, official export credit agencies and international banks to finance import of infrastructure equipment for leasing to infrastructure projects.
   4. Infrastructure Finance Companies (IFCs) i.e. Non-Banking Financial Companies (NBFCs), categorized as IFCs, by the Reserve Bank, are permitted to avail of ECBs, including the outstanding ECBs, beyond 50 per cent of their owned funds, for on-lending to the infrastructure sector as defined under the ECB policy, subject to their complying with the following conditions:compliance with the norms prescribed in the DNBS Circular DNBS.PD.CCNo.168 / 03.02.089 /2009-10 dated February 12, 2010 ii) hedging of the currency risk in full. Designated Authorised Dealer should ensure compliance with the extant norms while certifying the ECB application.
   5. Foreign Currency Convertible Bonds (FCCBs) by Housing Finance Companies satisfying the following minimum criteria: (i) the minimum net worth of the financial intermediary during the previous three years shall not be less than Rs. 500 crore, (ii) a listing on the BSE or NSE, (iii) minimum size of FCCB is USD 100 million and (iv) the applicant should submit the purpose / plan of utilization of funds.
   6. Special Purpose Vehicles, or any other entity notified by the Reserve Bank, set up to finance infrastructure companies / projects exclusively, will be treated as Financial Institutions and ECB by such entities will be considered under the Approval Route.
   7. Multi-State Co-operative Societies engaged in manufacturing activity and satisfying the following criteria i) the Co-operative Society is financially solvent and ii) the Co-operative Society submits its up-to-date audited balance sheet.
   8. SEZ developers can avail of ECBs for providing infrastructure facilities within SEZ, as defined in the extant ECB policy like (i) power, (ii) telecommunication, (iii) railways, (iv) roads including bridges, (v) sea port and airport, (vi) industrial parks, (vii) urban infrastructure (water supply, sanitation and sewage projects), (viii) mining, exploration and refining and (ix) cold storage or cold room facility, including for farm level pre-cooling, for preservation or storage of agricultural and allied produce, marine products and meat.
   9. Corporates in the services sector viz. hotels, hospitals and software sector can avail of ECB beyond USD 100 million per financial year.
   10. Corporates which have violated the extant ECB policy and are under investigation by the Reserve Bank and / or Directorate of Enforcement are allowed to avail of ECB only under the approval route.
   11. Cases falling outside the purview of the automatic route limits and maturity period indicated at paragraph A (iii).
2. Recognised Lenders:
   
   
   1. Borrowers can raise ECB from internationally recognised sources such as (i) international banks, (ii) international capital markets, (iii) multilateral financial institutions (such as IFC, ADB, CDC, etc.)/ regional financial institutions and Government owned development financial institutions, (iv) export credit agencies, (v) suppliers' of equipment, (vi) foreign collaborators and (vii) foreign equity holders (other than erstwhile OCBs).
   
   
   2. From 'foreign equity holder' where the minimum paid-up equity held directly by the foreign equity lender is 25 per cent but ECBs: equity ratio exceeds 4:1 (i.e. the proposed ECB exceeds four times the direct foreign equity holding).
   
   
   
3. Amount and Maturity :
   
   Corporates in the services sector viz. hotels, hospitals and software sector are allowed to avail of ECB beyond USD 100 million or its equivalent in a financial year for meeting foreign currency and/ or Rupee capital expenditure for permissible end-uses. The proceeds of the ECBs should not be used for acquisition of land.
   
   Corporates can avail of ECB of an additional amount of USD 250 million with average maturity of more than 10 years under the approval route, over and above the existing limit of USD 500 million under the automatic route, during a financial year. Other ECB criteria, such as end-use, recognized lender, etc., need to be complied with. Prepayment and call/put options, however, would not be permissible for such ECB up to a period of 10 years.
   
   
4. All-in-cost ceilings:
   
   All-in-cost includes rate of interest, other fees and expenses in foreign currency except commitment fee, pre-payment fee, and fees payable in Indian Rupees. The payment of withholding tax in Indian Rupees is excluded for calculating the all-in-cost.
   
   The all-in-cost ceilings for ECB are reviewed from time to time. The following ceilings are valid until reviewed: .
   
   

   Average Maturity Period	All-in-cost Ceilings over 6 month LIBOR*
   Three years and up to five years	350 basis points
   More than five years	500 basis points

   
   *for the respective currency of borrowing or applicable benchmark In the case of fixed rate loans, the swap cost plus margin should be the equivalent of the floating rate plus the applicable margin.
   
   
   
5. End-use:
   
   
   1. ECB can be raised only for investment [such as import of capital goods (as classified by DGFT in the Foreign Trade Policy), implementation of new projects, modernization/expansion of existing production units] in real sector - industrial sector including small and medium enterprises (SME) and infrastructure sector - in India. Infrastructure sector is defined as (i) power (ii) telecommunication (iii) railways (iv) roads including bridges (v) sea port and airport (vi) industrial parks (vii) urban infrastructure (water supply, sanitation and sewage projects) (viii) mining, exploration and refining and (ix) cold storage or cold room facility, including for farm level pre-cooling, for preservation or storage of agricultural and allied produce, marine products and meat.
   
   
   2. Overseas direct investment in Joint Ventures (JV)/Wholly Owned Subsidiaries (WOS) subject to the existing guidelines on Indian Direct Investment in JV/WOS abroad..
   
   
   3. The payment by eligible borrowers in the Telecom sector, for spectrum allocation may, initially, be met out of Rupee resources by the successful bidders, to be refinanced with a long-term ECB, under the approval route, subject to the following conditions:
      1. The ECB should be raised within 12 months from the date of payment of the final installment to the Government;
      2. The designated AD - Category I bank should monitor the end-use of funds;
      3. Banks in India will not be permitted to provide any form of guarantees; and
      4. All other conditions of ECB, such as eligible borrower, recognized lender, all-in-cost, average maturity, etc, should be complied with.
      
      
   4. The first stage acquisition of shares in the disinvestment process and also in the mandatory second stage offer to the public under the Government’s disinvestment programme of PSU shares.
   
   
6. End-uses not permitted :
   
   
   1. For on-lending or investment in capital market or acquiring a company (or a part thereof) in India by a corporate except Infrastructure Finance Companies (IFCs), banks and financial institutions eligible under paragraph I (B) (i) (a), (b) and (d).
   
   
   2. For real estate.
   
   
   3. For working capital, general corporate purpose and repayment of existing Rupee loans.
   
   
7. Guarantees:
   
   Issuance of guarantee, standby letter of credit, letter of undertaking or letter of comfort by banks, financial institutions and NBFCs relating to ECB is not normally permitted. Applications for providing guarantee/standby letter of credit or letter of comfort by banks, financial institutions relating to ECB in the case of SME will be considered on merit subject to prudential norms.
   
   
   
8. Security:
   
   Issuance of guarantee, standby letter of credit, letter of undertaking or letter of comfort by banks, financial institutions and NBFCs relating to ECB is not normally permitted. Applications for providing guarantee/standby letter of credit or letter of comfort by banks, financial institutions relating to ECB in the case of SME will be considered on merit subject to prudential norms.
   
   With a view to facilitating capacity expansion and technological upgradation in Indian textile industry, issue of guarantees, standby letters of credit, letters of undertaking and letters of comfort by banks in respect of ECB by textile companies for modernization or expansion of textile units will be considered under the Approval Route subject to prudential norms.
   
   
9. Security:
   
   The choice of security to be provided to the lender / supplier is left to the borrower. However, creation of charge over immovable assets and financial securities, such as shares, in favour of the overseas lender is subject to Regulation 8 of Notification No. FEMA 21/RB-2000 dated May 3, 2000 and Regulation 3 of Notification No. FEMA 20/RB-2000 dated May 3, 2000 as amended from time to time, respectively. Powers have been delegated to Authorised Dealer Category I banks to issue necessary NOCs under FEMA as detailed in para I (A) (viii) ibid.
   
   
10. Parking of ECB proceeds:
    
    Borrowers are permitted to either keep ECB proceeds abroad or to remit these funds to India, pending utilization for permissible end-uses.
    
    ECB proceeds parked overseas can be invested in the following liquid assets (a) deposits or Certificate of Deposit or other products offered by banks rated not less than AA (-) by Standard and Poor/ Fitch IBCA or Aa3 by Moody’s; (b) Treasury bills and other monetary instruments of one year maturity having minimum rating as indicated above and (c) deposits with overseas branches / subsidiaries of Indian banks abroad. The funds should be invested in such a way that the investments can be liquidated as and when funds are required by the borrower in India.
    
    ECB funds may also be repatriated to India for credit to the borrowers’ Rupee accounts with AD Category I banks in India pending utilization for permissible end-uses.
    
    
    
11. Prepayment:
    
    
    1. Prepayment of ECB up to USD 750 million may be allowed by the AD bank without prior approval of the Reserve Bank subject to compliance with the stipulated minimum average maturity period as applicable to the loan.
    
    
    2. Pre-payment of ECB for amounts exceeding USD 500 million would be considered by the Reserve Bank under the Approval Route.
    
    
    
12. Refinance of existing ECB:
    
    Existing ECB may be refinanced by raising a fresh ECB subject to the condition that the fresh ECB is raised at a lower all-in-cost and the outstanding maturity of the original ECB is maintained.
    
    
13. Debt Servicing:
    
    The designated AD bank has general permission to make remittances of installments of principal, interest and other charges in conformity with the ECB guidelines issued by Government / Reserve Bank from time to time.
    
    

REPORTING ARRANGEMENTS AND DISSEMINATION OF INFORMATION

1. Reporting Arrangements
   
   
   1. With a view to simplify the procedure, submission of copy of loan agreement is dispensed with.
   
   
   2. Borrowers are required to submit Form 83, in duplicate, certified by the Company Secretary (CS) or Chartered Accountant (CA) to the designated AD. One copy is to be forwarded by the designated AD to the Director, Balance of Payments Statistics Division, Department of Statistical Analysis and Computer Services (DESACS), Reserve Bank of India, Bandra-Kurla Complex, Mumbai – 400 051 for allotment of loan registration number.
   
   
   3. The borrower can draw-down the loan only after obtaining the loan registration number from DESACS, RBI.
   
   
   4. Borrowers are required to submit ECB-2 Return certified by the designated AD on monthly basis so as to reach DESACS, RBI within seven working days from the close of month to which it relates.
      
      
2. Simplification of Procedure:
   
   

   Reserve Bank of India under its circular no RBI/2011-12/169 A.P. (DIR Series) Circular no 11 dated 07-09-2011 has simplified the procedure for change of lender for an existing ECB, and decided to delegate powers to AD Category I Banks to approve request from ECB borrowers subject to certain conditions as mentioned in the circular.
   

(3) 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 original 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 in to India extended by the overseas supplier, while buyers’ credit refers to loans for payment of imports in to 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.

Period and Rate of Interest :

Trade credits for imports into India up to US$ 20 million per import transaction for import of all items (permissible under the EXIM POLICY) with a maturity period (from the date of shipment) up to one year.

For import of capital goods, trade credits up to USD 20 million per import transaction with a maturity period of more than one year and less than three years. No roll-over/ extension will be permitted beyond the permissible period.

Period and Rate of Interest :

Maturity Period	Rate of Interest Six months LIBOR +
Up to one year	350 bps
More than one year but less than three years	350 bps

Guarantee :

With effect from 01st November, 2004, ADs are permitted to Issue Guarantee/ Letter of Undertaking (LoU)/ Letter of Comfort (LoC) in favour of overseas supplier, bank or financial institution, on behalf of their importer constituents.

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