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TMI BlogExternal Commercial Borrowings (ECB)X X X X Extracts X X X X X X X X Extracts X X X X ..... or more external debt. An analysis of various indicators of external debt (e.g. short-term debt, debt to GDP ratio, debt servicing ratio, vis-à-vis the proportion of debt to non-debt capital flows) indicates that there is some head-room for increase in the magnitude of debt especially for real investment activity. As a part of overall management of the external sector, there is a case for putting in place a liberalised ECB policy provided there is no bunching of residual maturity of ECB in any particular year and the option of restricting the capital flows in future, if need be, is kept open. 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. Until November 14, 2003, any legal entity such as a corporate /financial intermediary was an eligible borrower. In view of its implication for potential systemic risks, ECB availed by financial intermediaries need to be distinguished from those availed by corporates. Furthermore, banks have the facility (i) to borrow from its head office or branch or co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Minimum Average Maturity Period All-in-cost Ceilings over six month LIBOR* Three years and up to five years 200 basis points More than five years 350 basis points * for the respective currency of borrowing or applicable benchmark. End-use a. ECB can be raised only for investment (such as import of capital goods, 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) road including bridges, (v) ports, (vi) industrial parks and (vii) urban infrastructure (water supply, sanitation and sewage projects); b. Utilisation of ECB proceeds is permitted in 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. c. Utilisation of ECB proceeds is not permitted for on-lending orinvestment in capital market by corporates d. Utilisation of ECB proceeds is not permitted in real estat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tutions which had participated in the textile or steel sector restructuring package as approved by the Government will also be permitted to the extent of their investment in the package and assessment by RBI based on prudential norms. Any ECB availed for this purpose so far will be deducted from their entitlement. c. Cases falling outside the purview of the automatic route limits and maturity period indicated at paragraph 2 (A)(iii) (a) and 2 (A)(iii) (b). ii. Recognised Lenders Borrowers can raise ECB from internationally recognised sources such as (i) international banks, international capital markets, multilateral financial institutions (such as IFC, ADB, CDC etc.,), (ii) export credit agencies and (iii) suppliers of equipment, foreign collaborators and foreign equity holders. iii. 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.Moreover, the payment of withholding tax in Indian Rupees is excluded for calculating the all-in-cost. The all-in-cost ceilings for ECB will be indicated from time to time. The following ceilings will have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceeds should be parked overseas until actual requirement in India. vi. Prepayment Prepayment of ECB up to USD 100 million is permitted without prior approval of RBI, subject to compliance with the stipulated minimum average maturity period as applicable for the loan. vii. Refinance of existing ECB Refinancing of outstanding ECB by raising fresh loans at lower cost is permitted subject to the condition that the outstanding maturity of the original loan is maintained. viii. Debt Servicing The designated AD has the general permission to make remittances of instalments of principal, interest and other charges in conformity with ECB guidelines issued by Government / RBI from time to time. i. Procedure Applicants are required to submit an application in form ECB (format in Annex I) through designated AD to the Chief General Manager-in-Charge, Foreign Exchange Department, Reserve Bank of India, Central Office, External Commercial Borrowings Division, Mumbai - 400 001 along with necessary documents. ii. Empowered Committee RBI will set up an Empowered Committee to consider proposals coming under the approval route. (C) REPORTING ARRANGEMENTS AND ..... X X X X Extracts X X X X X X X X Extracts X X X X
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