External Commercial Borrowings (ECB)
by Startups
RBI/2016-17/103 October
27, 2016 To All Category-I Authorised Dealer
Banks Madam / Dear Sir External
Commercial Borrowings (ECB) by Startups Attention of Authorized Dealer
Category-I (AD Category-I) banks is invited to the announcement made by the
Reserve Bank in the Fourth Bi-monthly Monetary
Policy Statement for the year 2016-17 released on October 04, 2016,
for permitting Startup enterprises to access loans under ECB framework. 2. Parameters for considering an
entity as a Startup have since been published in the Official Gazette on
February 18, 2016 by the Government of India. It is therefore decided, in
consultation with the Government of India to permit AD Category-I banks to
allow Startups to raise ECB under the following framework: a. Eligibility: An entity recognised as a Startup by the Central Government
as on date of raising ECB. b. Maturity: Minimum average maturity period will be 3 years. c. Recognised lender: Lender / investor shall be a resident of a country who
is either a member of Financial Action Task Force (FATF) or a member of a
FATF-Style Regional Bodies; and shall not be from a country identified in the
public statement of the FATF as: i.
A
jurisdiction having a strategic Anti-Money Laundering or Combating the
Financing of Terrorism deficiencies to which counter measures apply; or ii.
A
jurisdiction that has not made sufficient progress in addressing the
deficiencies or has not committed to an action plan developed with the
Financial Action Task Force to address the deficiencies Exclusion: Overseas branches/subsidiaries of Indian banks and
overseas wholly owned subsidiary / joint venture of an Indian company will,
however, not be considered as recognized lenders under this framework. d. Forms: The borrowing can be in the form of loans or
non-convertible, optionally convertible or partially convertible preference
shares. The funds should come from a country which fulfils the conditions at
2 (c) above. e. Currency: The borrowing should be denominated in any freely
convertible currency or in Indian Rupees (INR) or a combination thereof. In
case of borrowing in INR, the non-resident lender, should mobilise INR
through swaps/outright sale undertaken through an AD Category-I bank in
India. f. Amount: The borrowing per Startup will be limited to USD 3 million
or equivalent per financial year either in INR or any convertible foreign
currency or a combination of both. g. All-in-cost: Shall be mutually agreed between the borrower and the
lender. h. End-uses: For any expenditure in connection with the business of
the borrower. i. Conversion into equity: Conversion into equity is freely permitted, subject to
Regulations applicable for foreign investment in Startups. j. Security: The choice of security to be provided to the lender is
left to the borrowing entity. Security can be in the nature of movable,
immovable, intangible assets (including patents, intellectual property
rights), financial securities, etc., and shall comply with foreign direct
investment / foreign portfolio investment / or any other norms applicable for
foreign lenders / entities holding such securities. k. Corporate and personal
guarantee: Issuance of corporate or
personal guarantee is allowed. Guarantee issued by non-resident(s) is allowed
only if such parties qualify as lender under paragraph 2(c) above. Exclusion: Issuance of guarantee, standby letter of credit, letter
of undertaking or letter of comfort by Indian banks, all India Financial
Institutions and NBFCs is not permitted. l. Hedging: The overseas lender, in case of INR denominated ECB,
will be eligible to hedge its INR exposure through permitted derivative
products with AD Category – I banks in India. The lender can also access the
domestic market through branches/ subsidiaries of Indian banks abroad or
branches of foreign bank with Indian presence on a back to back basis. m. Conversion rate: In case of borrowing in INR, the foreign currency - INR
conversion will be at the market rate as on the date of agreement. 3. Other provisions like parking
of ECB proceeds, reporting arrangements, powers delegated to AD banks,
borrowing by entities under investigation, conversion of ECB into equity will
be as included in the ECB framework announced vide A.P. (DIR Series) Circular No. 32 dated November 30, 2015.
However, provisions on leverage ratio and ECB liability: Equity ratio will
not be applicable. 4. It may be noted that Startups
raising ECB in foreign currency, whether having natural hedge or not, are
exposed to currency risk due to exchange rate movements and hence are advised
to ensure that they have an appropriate risk management policy to manage
potential risk arising out of ECBs. 5. AD Category-I banks may bring
the contents of this circular to the notice of their constituents and
customers. 6. Master
Direction No.5 dated January 1, 2016 is being updated to reflect
changes. 7. The directions contained in
this circular has been issued under section 10(4) and 11(2) of the Foreign
Exchange Management Act, 1999 (42 of 1999) and are without prejudice to
permissions / approvals, if any, required under any other law. Yours
faithfully (A.K.
Pandey) |
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