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    ECB REGULATIONS

    Late Submission Fee (LSF)

    Amount involved in reporting (in Rs.)

    Late Submission Fee (LSF) as % of amount involved *

    Maximum amount of LSF applicable

    Up to 10 million

    0.05 percent

    Rs.1 million or 300% of the amount involved, whichever is lower

    More than 10 million

    0.15 percent

    Rs.10 million or 300% of the amount involved, whichever is lower

    * The % of LSF will be doubled every twelve months

    EXTERNAL COMMERCIAL BORROWINGS (ECB)

    What is ECB

    • External Commercial Borrowings (ECBs) include
      • bank loans,
      • suppliers' and buyers' credits,
      • fixed and floating rate bonds (without convertibility)
      • Financial Lease
      • borrowings from private sector windows of multilateral Financial Institutions such as IFC, ADB, CDC
      • .
    • Euro-issues include Euro-convertible bonds and

    Sec.6(3) Of FEMA,1999 read with Notification No. FEMA 3/ 2000-RB viz. Foreign Exchange

    Management (Borrowing or Lending in Foreign Exchange)Regulations, 2000, dated May 3, 2000

    Regulator And Importance of ECB Regulator- CG with the consultation of RBI Importance

    • The ECB policy focuses on three aspects:
      • Eligibility criteria for accessing external
      • The total volume of borrowings to be raised and their maturity
      • End use of the funds raised 

    External Commercial Borrowings

    Indian companies are allowed to access funds from abroad in the following Methods:

    ECB – New regime

    Track – I

    Track – II

    Track – III

    Medium term foreign currency d e n o m i n a t e d   E C B  w i t h minimum average maturity of 3/5 years

    Long term foreign currency d e n o m i n a t e d   E C B  w i t h minimum average maturity of 10 years

    I n d i a n    R u p e e   ( I N R ) d e n o m i n a t e d   E C B  w i t h minimum average maturity of 3/5 years

    Eligible Borrowers

    Track – I

    Track-II

    Track-III

    Companies in Mfg and Software development

    All entities listed under Track-I

    All entities listed under Track-II

    Shipping & Airline Companies

    Companies in Infrastructure Sector

    All NBFCs registered with RBI

    SIDBI (Automatic Route) EXIM Bank(Approval Route)

    REITs and INVITs

    NBFC-MFI, NPOs engaged in MFI activity

    Units in SEZ

     

    Cos. engaged in R&D, Training (other than educational Inst.)

    NBFC-IFC, NBFC-AFC

     

    Cos. Supporting Infra and logistic services

    Holding Companies and CIC

     

    Developers of SEZ/NMIZs

    HFC, regulated by the NHB

     

    Companies engaged in the business of Maintenance, Repair and Overhaul and freight forwarding

    Port Trusts

     

     

    EXIM Bank (Approval route)

     

     

    Recognized Lenders

    Track – I

    Track-II

    Track-III

    Multilateral financial institutions (such as IFC, ADB, CDC, etc.) / regional FIs and Govt. ownedFis

    All entities listed under Track-I (except OB and Sub of Indian Banks)

    All entities listed under Track-I (except OB and Subsidiaries of Indian Banks)

    International capital markets

    In case of MFIs and NPOs engaged in MFIs, Overseas Organisations and Individuals can lend (subject to the conditions)

    International banks

    Export credit agencies

    Suppliers of equipment

    Foreign collaborators and Foreign equity holders [other than OCBs]

    Overseas Long Term Investors

    Overseas Branches/ Subsidiaries of Indian Banks

    Amount and Maturity Under Automatic Route

    All in cost ceiling

    Average Maturity Period

    Track-I

    Track-II

    Track-III

    3-5 years

    6 Months LIBOR+

    450 Basis Points

    6 Months LIBOR+ 450 Basis Points

    450 basis points over the prevailing yield of the GOI securities of corresponding maturity

    More than 5 years

    More than 10 Years

    NA

    Penal Interest - <= 2%

     

    All in cost includes:

    • Rate of Interest,
    • other fees and expenses in foreign currency
    • except commitment fees,
    • Prepayment fees,
    • Fees payable in Indian Rupees

     

    Parking of ECB Proceeds 

    • ECB raised abroad meant for Rupee expenditure in India, should be brought immediately for credit to their Rupee accounts with AD Category I banks in Can be parked in unencumbered FDs upto a maximum period of 12 months 
    • ECB proceeds meant only for foreign currency expenditure can be retained abroad pending 

    End Use of Proceeds – Not Permitted 

    Track I to III

    • onward lending
    • investment in capital market
    • Equity investment domestically

    Investment in real estate or Acquisition of Land (except for affordable housing projects, SEZs and

    Industrial parks/ integrated townships)

    Track I and II (except from Direct and Indirect Equity holders & MAM is >= 5 Years)

    • Working Capital Purpose
    • General Corporate Purpose
    • Repayment of Rupee Loans

    Issue of Guarantees 

    • Need to pass Board Resolution with all the details
    • Specific requests for issue of Guarantee by individuals need to be explicit
    • The Guarantee period should be co-terminus with loan period

    Security 

    • The choice of security to be provided to the lender/supplier is left to the
    • However, creation of charge over immovable assets and financial securities in favour of the overseas lender is subject to compliance of specified 

    Granting of NOC by AD (½) 

    • ‘No objection’ for Creation of charge on Immovable assets shall be granted only to a resident ECB
    • The period of such charge on immovable assets has to be co-terminus with the maturity of the underlying
    • Such ‘no objection’ should not be construed as a permission to acquire immovable asset (property) in India, by the overseas lender/ security
    • In the event of enforcement / invocation of the charge, the immovable asset (property) will have to be sold only to a person resident in India and the sale proceeds shall be repatriated to liquidate the outstanding 

    Granting of NOC by AD (2/2) 

    • No objection’ for pledge of shares shall be granted only to a resident ECB
    • The pledge of shares of the borrowing company as well as domestic associate companies held by promoters of the borrowing company to secure the ECB subject to the following conditions:
      • The period of such pledge shall be co-terminus with the maturity of the underlying
      • In case of invocation of pledge, transfer shall be in accordance with the extant FDI
      • A certificate from the Statutory Auditor of the company that the ECB proceeds have been / will be utilized for the permitted end-use/s. 

    Other Points 

    • 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 
    • 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 

    Application for Prior Approval 

    • Applicants are required to submit an application in form ECB through designated AD bank along with necessary

    The Chief General Manager-in-Charge, Foreign Exchange Department, Central Office,

    ECB Division,

    Reserve Bank of India, Mumbai – 400 001 

    Draw Down/LRN 

    • For allotment of Loan Registration Number (LRN), borrowers are required to submit Form 83, in duplicate, certified by the CS or CA to the designated AD bank. 
    • The borrower can draw-down the loan only after obtaining the LRN from DSIM, Reserve

    Recurring Compliances 

    • 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 

    Change of Terms and Other Conditions 

    • Earlier for cancellation of LRN and change in the end use of ECB Proceeds- approval of DSIM is required
    • It has been simplified by delegating power to AD Category-I banks for
    1. Cancellation of LRN (Automatic & Approval Route)
    • Change in the end use of ECB proceeds(Automatic route) Subject to certain

    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 

    Conversion of ECB Into Equity- Conditions 

    • The activity of the company- Automatic Route for FDI
    • OR Government approval for foreign equity participation has been obtained by the company, wherever
    • The foreign equity holding after such conversion of debt into equity is within the sectoral cap, if any, Pricing of shares is as per the pricing guidelines issued under FEMA, 1999 in the case of listed/ unlisted companies.

    Conversion of ECB Into Equity- Reporting

     

    Full Conversion                                                                     Partial Conversion

     

    • File Form FC-GPR
    • Form ECB-2 with in 7 working days
    • "ECB wholly converted to equity" -on top of the ECB-2
    • Subsequent months Filing is not necessary
    • File Form FC-GPR
    • Form ECB-2 with in 7 working days
    • "ECB Partially converted to equity" -on top of the ECB-2
    • Subsequent months Filing is necessary for remaining portion of O/s ECB

    Trade Credits 

    • Suppliers Credit – Where the overseas supplier give credit for certain period
    • Buyer’s Credit – Where the overseas supplier facilitates the credit from a foreign bank / financial institution
    • Maturity period

    Capital Goods - > 1 year and < 5 years from the date of shipment Others - < 1 year or operating cycle, whichever is less

    • Amount – USD 20 Million per shipment
    • No roll over or extension is permitted
    • All in cost ceiling

    Maturity Period

    All-in-cost ceilings over 6 months LIBOR*

    Up to one year

     

    350 basis points

    > 1 year but < 5 years

    * for the respective currency of credit or applicable benchmark

    LOANS FROM NRI

    Loans from NRI / PIO 

    • Borrowing in FC by Individual resident Indian in India
      • The lender is a close relative (ref Sec 2(77) of Companies Act, 2013)
      • The maximum loan amount is USD 250,000 or its equivalent INR
      • The loan amount shall be received by CFE/NRE/FCNR funds
      • Minimum maturity period of the loan is 1 year
      • The loan is free of Interest
    • Restriction on end use of Funds
      • The borrower shall not engage in Agricultural/ Plantation/ real estate business/ trading in TDR/ does not act as Nidhi or Chit Fund company;
      • also the funds shall not be used for investment in capital or otherwise, in any company or partnership firm or proprietorship concern or any entity, whether incorporated or not or for re-lendin 
    • Borrowing in INR by persons other than Companies in India
      • The loan amount shall be received by CFE/NRE/NRO/FCNR funds
      • The loan period shall not exceed 3 years
      • The Rate of Interest shall not exceed 2% over prevailing bank rate
      • The loan amount is not eligible for repatriation (but eligible under USD 1 Million)
    • Restriction on end use of Funds Same as in previous slide 

    Ÿ  Borrowing in INR by Companies in India

    • The amount shall be received by way issue of NCDs
    • The issue of NCDs is made by public offer
    • The loan period shall not be less than 3 years
    • The Rate of Interest shall not exceed 3% over prevailing bank rateŸThe company shall file report to RBI within 30 days of receipt 

    Ÿ  Additional conditions for repatriation

    • The % of investment by NRI shall be within the limits specified under FDI
    • The amount has to come by CFE/NRE/FCNR account

     

    Ÿ  Restriction on end use of Funds

    • The borrower shall not engage in Agricultural/ Plantation/ real estate business/ trading in TDR/ does not act as Nidhi or Chit Fund company;

    also the funds shall not be used for investment in capital or otherwise, in any company or partnership firm or proprietorship concern or any entity, whether incorporated or not or for re-lending

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