External Commercial Borrowings

External Commercial Borrowings – ECBs refer to commercial loans in the form of bank
loans, securitized instruments (e.g. floating rate notes and fixed rate bonds, non-
convertible, optionally convertible or partially convertible preference shares), buyers’ credit,
suppliers’ credit availed of from non-resident lenders with a minimum average maturity of 3
years.

Other debt instruments to which ECB guidelines applicable are given below

Foreign Currency Convertible Bonds (FCCBs) mean a bond issued by an Indian company
expressed in foreign currency, and the principal and interest in respect of which are
payable in foreign currency. The Bond gets converted into Ordinary Shares of the issuing
company either in whole or in Part at a pre-determined date based on equity related
warrants attached to the bond. The ECB policy is applicable to FCCBs.

Foreign Currency Exchangeable Bonds (FCEBs) mean a bond issued by an Indian

company expressed in foreign currency, and the principal and interest in respect of which
are payable in foreign currency. The Bond gets converted into Ordinary Shares of another
company, to be called the Offered Company either in whole or in Part at a pre-determined
date based on equity related warrants attached to the bond. The ECB policy is applicable
to FCEBs.

Preference shares Preferences Shares (i.e. non-convertible, optionally convertible or

partially convertible) for issue of which, funds have been received on or after May 1, 2007
would be considered as debt and should conform to the ECB policy. Accordingly, all the
norms applicable for ECB, viz. eligible borrowers, recognized lenders, amount and maturity,
end use stipulations, etc. shall apply. Since these instruments would be denominated in
Rupees, the rupee interest rate will be based on the swap equivalent of LIBOR plus the
spread as permissible for ECBs of corresponding maturity.

External Commercial Borrowing can be availed under two routes:

 Automatic Route
 Approval Route

Automatic Route
Borrowers can avail ECB under Automatic Route subject to meeting certain basic criteria
such as:***
1. Eligible Borrower, i.e. who can borrow
2. Recognised Lenders i.e. from whom ECB can be availed
3. Amount & Maturity (minimum average maturity)
4. All-in-Cost Ceilings (Maximum Servicing Cost of the loan)
5. Guarantee & Security
6. End Use

Accordingly, eligibility for an ECB in respect of eligible borrowers, recognized lenders, end-
uses, etc. have to be read in conjunction and not in isolation.

*** The above factors are captured under a tabular form in an Excel Sheet attached
herewith. Standard Customer request letter also enclosed.

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Apart from the above referred basic eligibility criteria information required if any on the
under-mentioned points may be obtained from relevant RBI circulars.

1. Compliance with ECB guidelines.

2. Corporates Under Investigation
3. Guarantees
4. Security
5. Parking of ECB proceeds
6. Prepayment
7. Refinancing of an existing ECB
8. Debt Servicing
1. Compliance with ECB Guidelines: The primary responsibility to ensure that ECB
raised/utilised are in conformity with the ECB guidelines and the Reserve Bank
regulations / directions is that of the borrower concerned and any contravention of
the ECB guidelines will be viewed seriously and will invite penal action under FEMA
1999. The designated AD bank is also required to ensure that raising / utilisation of
ECB is in compliance with ECB guidelines at the time of certification.

2. Corporates Under Investigation: TF Ops shall obtain a declaration from the

borrowing entity, while applying for LRN number, notifying the bank if there are any
investigations/ adjudications /appeals by any Government Agency pending/on-
going against the entity. If the borrower declares about existence of any pending
investigations, TF Ops should obtain the name and address of the investigating
agency, any reference number of the agency etc., and forward a copy of the letter
issued by RBI allotting LRN number.”

All entities may avail ECBs’ as per the current norms, if they are otherwise eligible,
notwithstanding the pending investigations / adjudications / appeals, without
prejudice to the outcome of such investigations / adjudications / appeals.
Accordingly, in case of all applications where the borrowing entity has indicated
about the pending investigations / adjudications / appeals, Authorised Dealers
while approving the proposal shall intimate the concerned agencies by endorsing
the copy of the approval letter.

3. Guarantees: Bank from India can not issue any type of guarantee / letter of
comfort / LC / SBLC etc for availing ECB by the borrower

4. 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.
 Before according 'no objection' under FEMA, 1999, AD Category - I banks should
ensure and satisfy themselves that:
(i) the underlying ECB is strictly in compliance with the extant ECB guidelines,
(ii) there exists a security clause in the loan agreement requiring the borrower to
create charge on immovable assets / financial securities / furnish corporate
or personal guarantee,
(iii) the loan agreement has been signed by both the lender and the borrower and
the borrower has obtained Loan Registration Number (LRN) from the Reserve
Bank. On compliance with the above conditions, AD Category - I banks may
convey their 'no objection', under FEMA, 1999 for creation of charge on
immovable assets, financial securities and issue of personal or corporate
guarantee, subject to certain conditions based on the nature of NOC. Please
refer to para IX of RBI Master Circular.
<Let’s create a template for NOC>

5. Parking of ECB proceeds: The proceeds of the ECB raised abroad meant for Rupee
expenditure in India, should be repatriated immediately for credit to the borrowers'
Rupee accounts with AD Category I banks in India. The rupee funds, however, will not
be permitted to be used for investment in capital markets, real estate or for inter-
corporate lending.
o ECB proceeds meant only for foreign currency expenditure can
be retained abroad pending utilization.
6. Prepayment: Prepayment of ECB up to USD 500 million may be allowed by AD banks
without prior approval of Reserve Bank subject to compliance with the stipulated
minimum average maturity period as applicable to the loan.
7. Refinancing of an existing ECB: The 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.
8. Debt Servicing: The designated AD bank has the general permission to make
remittances of installment of principal, interest and other charges in conformity with
the ECB guidelines issued by Government / Reserve Bank of India from time to time.
9. Method of calculation of Average Maturity:

Calculation of Average Maturity- An Illustration

ABC LTD.______________________________________

Loan Amount = USD 2 million

Product
No. of
Date of = (Col.4
Days**
drawal / Repay- * Col. 5)
Drawal Balance balance
repayment ment / (Loan
with the
(MM/DD/YYYY) amount
borrower
* 360)

Col. 1 Col. 2 Col. 3 Col. 4 Col. 5 Col. 6

05/11/2007 0.75 0.75 24 0.0250

06/05/2007 0.50 1.25 85 0.1476

08/31/2007 0.75 2.00 477 1.3250

12/27/2008 0.20 1.80 180 0.4500

06/27/2009 0.25 1.55 180 0.3875

12/27/2009 0.25 1.30 180 0.3250

06/27/2010 0.30 1.00 180 0.2500

12/27/2010 0.25 0.75 180 0.1875

06/27/2011 0.25 0.50 180 0.1250

12/27/2011 0.25 0.25 180 0.0625

06/27/2012 0.25 0.00

Average Maturity = 3.2851

Calculated by = DAYS360 (first date, second date, 360)
**
10. Basic requirements for obtaining LRN number under Approval Route
o Applicants are required to submit an application in form ECB through designated
AD bank to the Principal Chief General Manager, Foreign Exchange Department,
Reserve Bank of India, Central Office, External Commercial Borrowings Division,
Mumbai - 400 001, along with necessary documents, such as:
o Form No.83
 o Loan Agreement duly signed by the Proposed Lender and the Borrower
o Borrowers request letter for LRN number under approval route clearly giving the
 Profile of the company and the lender
 Justification for applying under approval route
 Declaration on pending investigations if any
 Terms of loan such as tenor, repayment, pricing, Purpose etc.
 Any special conditions which need a mention in the request.
 Undertaking to comply with relevant FEMA regulations
o a certificate of due diligence from an overseas bank, which, in turn, is subject to
regulation of host-country regulator and adheres to the Financial Action Task
Force (FATF) guidelines. 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 organised as per the local laws and held in
good esteem by the business/local community and
 (iii) that there is no criminal action pending against it.
o 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 eligible to extend ECB.

For More information on Approval Route, please refer to Master circular &
relevant AP-DIR series circulars.
11. Other Aspects of ECB
o Structured Obligations
o Take-out Finance
o Conversion of ECB into Equity
o Crystallisation of ECB
o ECB under the erstwhile 5 Million Scheme

For More information on the above aspects, please refer to Master circular &
relevant AP-DIR series circulars.
12. Reporting Arangements and Dissemination of Information
i) Reporting Arrangements (to RBI):
a. With a view to simplifying the procedure, submission of copy of loan
agreement to RBI is dispensed with.
b. For allotment of Loan Registration Number (LRN), borrowers are required
to submit
o Form 83, in duplicate, certified by the Company Secretary (CS) or
Chartered Accountant (CA) to the designated AD bank. One copy is to
be forwarded by the designated AD bank to the Director, Balance of
Payments Statistics Division, Department of Statistics and Information
Management (DSIM), Reserve Bank of India, Bandra-Kurla Complex,
Mumbai - 400 051
o Note: copies of loan agreement and offer documents for FCCB are not
required to be submitted with Form 83
c. The borrower can draw-down the loan only after obtaining the LRN from
DSIM, Reserve Bank.
d. Borrowers are required to submit ECB-2 Return certified by the
designated AD bank on monthly basis so as to reach DSIM, Reserve Bank
within seven working days from the close of month to which it relates.
 Note: All previous returns relating to ECB viz. ECB 3 - ECB 6 have been
discontinued with effect from January 31, 2004].

ii) Dissemination of Information:

For providing greater transparency, information with regard to the name of the
borrower, amount, purpose and maturity of ECB under both Automatic and
Approval routes are put on the Reserve Bank's website, on a monthly basis, with a
lag of one month to which it relates.

 Covering Letter format to RBI for filing the following;

1. Form 83
2. ECB refinancing
3. ECB2
 Should we have a format for CA Certificate:
can we look at the attached file.
Caution to the user of this report:
The primary purpose of this document is to give a basic understanding of the requirements
as well as the criteria, rules and regulations of ECB under Automatic Route. User of the
report should always refer to the updates received from RBI via AP-DIR Series Circulars
and Master Circulars and act accordingly.