The Reserve Bank of India (RBI), through a circular dated 27 April 2018 (Circular) has further liberalized the External Commercial Borrowing (ECB) norms in light of requests received from corporates and other entities. The Circular simplifies ECB norms with a view to provide access of cheaper funds to corporate borrowers to meet their capital requirements.
Key highlights of the Circular are as follows:
- Expansion of Eligible Borrower’s list
The Eligible Borrower’s list has been expanded and now includes the following:
- Housing Finance Companies, regulated by the National Housing Bank shall be eligible to avail ECB under all Tracks provided that such entities have a board approved risk management policy and keep their ECB exposure hedged 100% at all times for ECBs raised under Track I;
- Port Trusts either constituted under the Major Port Trusts Act, 1963 or Indian Ports Act, 1908, shall be eligible to avail ECB under all Tracks provided that such entities have a board approved risk management policy and keep their ECB exposure hedged 100% at all times for ECBs raised under Track I; and
- Companies engaged in the business of maintenance, repair and overhaul and freight forwarding provided that ECBs are denominated in Indian Rupees only.
- Rationalisation of end-use provisions for ECBs
There shall now only be a negative list for all Tracks in relation to end-use provisions for ECBs. The negative list for all Tracks shall include the following:
- Investment in real estate or purchase of land except when used for affordable housing as defined under Harmonized Master List of Infrastructure Sub-sectors notified by Government of India, construction and development of Special Economic Zone and industrial parks/integrated townships.
- Investment in capital market.
- Equity investment.
Additionally for Tracks I and III, the following negative end uses would also apply except when raised from direct and indirect equity holders or from a group company, and provided the loan is for a minimum average maturity of five years:
- Working capital purposes.
- General corporate purposes.
- Repayment of Indian Rupee loans.
For all Tracks, the following negative end use shall also apply:
- On-lending to entities for the above activities from (a) to (f).
- Revisiting ECB Liability to ECB Equity Ratio provisions
For ECBs raised from direct foreign equity holder under the automatic route, the ECB Liability to ECB Equity Ratio has been increased to 7:1. However, this ratio would not apply where aggregate ECBs raised by an entity is up to USD five million or equivalent.
- Rationalisation of all-in-cost ceiling for ECB and Rupee Denominated Bonds
A uniform all-in-cost ceiling of 450 basis points over the benchmark rate has been stipulated with an aim of harmonising the existing provisions of Foreign Currency, Rupee ECBs and Rupee Denominated Bonds. The benchmark rate shall be 6 month USD LIBOR (or applicable benchmark for respective currency) for Track I and Track II ECB, while it shall be the prevailing yield of the Government of India securities of corresponding maturity for Track III (Rupee ECBs) and Rupee Denominated Bonds.
The said Circular may be accessed at: