RBI/2018-19/109
A.P. (DIR Series) Circular No. 17
January
16, 2019
To
All Category-I Authorised Dealer
Banks
Madam / Sir,
External
Commercial Borrowings (ECB) Policy – New ECB Framework
Attention of Authorized Dealer
Category-I (AD Category-I) banks is invited to paragraph 7 of the Statement on Developmental and Regulatory Policies of
the Fifth Bi-monthly Monetary Policy
Statement for 2018-19 released on December 5, 2018. Reference is
also invited to paragraphs 2 and 3 of Master
Direction No.5 dated January 1, 2016 on “External Commercial
Borrowings, Trade Credit, Borrowing and Lending in Foreign Currency by
Authorised Dealers and Persons other than Authorised Dealers”, as amended
from time to time.
2. As indicated in the aforesaid
statement, it has been decided, in consultation with the Government of
India, to rationalise the extant framework for ECB and Rupee Denominated
Bonds in light of the experience gained to improve the ease of doing
business. The new framework is instrument neutral and would further
strengthen the AML/CFT framework.
3. The revised ECB guidelines
are set out in the Annex to this
circular. The salient features of the new framework are as under:
i.
Merging of
Tracks: Merging of Tracks I and II
as “Foreign Currency denominated ECB” and merging of Track III and Rupee
Denominated Bonds framework as “Rupee Denominated ECB”.
ii.
Eligible
Borrowers: This has been expanded to
include all entities eligible to receive FDI. Additionally, Port Trusts,
Units in SEZ, SIDBI, EXIM Bank, registered entities engaged in
micro-finance activities, viz., registered not for profit companies,
registered societies/trusts/cooperatives and non-government organisations
can also borrow under this framework.
iii.
Recognised
Lender: The lender should be
resident of FATF or IOSCO compliant country. Multilateral and Regional
Financial Institutions, Individuals and Foreign branches / subsidiaries of
Indian banks can also be lenders as detailed in Annex.
iv.
Minimum Average
Maturity Period (MAMP): MAMP
will be 3 years for all ECBs. However, for ECB raised from foreign equity
holder and utilised for specific purposes, as detailed in the Annex, the
MAMP would be 5 years. Similarly, for ECB up to USD 50 million per financial
year raised by manufacturing sector, which has been given a special
dispensation, the MAMP would be 1 year as given in the Annex.
v.
Late
Submission Fee (LSF) for delay in Reporting: Any borrower, who is otherwise in compliance of
ECB guidelines, except for delay in reporting drawdown of ECB proceeds
before obtaining LRN or Form ECB 2 returns, can regularize the delay by
payment of LSF as per the laid down procedure.
4. ECB up to USD 750 million or
equivalent per financial year, which otherwise are in compliance with the
parameters and other terms and conditions set out in the new ECB framework,
will be permitted under the automatic route not requiring prior approval of
the Reserve Bank. The designated AD Category I bank while considering the
ECB proposal is expected to ensure compliance with applicable ECB
guidelines by their constituents. Any contravention of the applicable
provisions will invite penal action or adjudication under the Foreign
Exchange Management Act, 1999.
5. Lending and borrowing under
the ECB framework by Indian banks and their branches/subsidiaries outside
India will be subject to prudential guidelines issued by the Department of
Banking Regulation of the Reserve Bank. Further, other entities raising ECB
are required to follow the guidelines issued, if any, by the concerned
sectoral or prudential regulator.
6. The amended policy will come
into force with immediate effect. The Principal Regulations governing the
ECB policy has been rationalized through the Foreign Exchange Management
(Borrowing and Lending) Regulations, 2018 and notified through Notification No. FEMA.3R/2018-RB dated December 17, 2018,
vide G.S.R. 1213(E) dated December 17, 2018.
7. The aforesaid Master Direction No. 5 dated January 01, 2016 is
being revised to reflect the above changes.
8. The directions contained in
this circular have 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
Ajay
Kumar Misra
Chief General Manager-in-Charge
ANNEX
New
External Commercial Borrowings (ECB) framework
{c.f.: A.P. (DIR Series) Circular No. 17 dated January 16, 2019}
1. Important terms used:
1.1. All-in-Cost: It includes rate of interest, other fees,
expenses, charges, guarantee fees, Export Credit Agency (ECA) charges,
whether paid in foreign currency or Indian Rupees (INR) but will not include
commitment fees and withholding tax payable in INR. In the case of fixed
rate loans, the swap cost plus spread should not be more than the floating
rate plus the applicable spread. Additionally, for Foreign Currency
Convertible Bonds (FCCBs) the issue related expenses should not exceed 4
per cent of issue size and in case of private placement, these expenses
should not exceed 2 per cent of the issue size, etc. Various components of
all-in-cost have to be paid by the borrower without taking recourse to the
drawdown of ECB/ TC, i.e., ECB/TC proceeds cannot be used for payment of
interest/charges.
1.2. Approval route: Under the ECB/TC framework, ECB/TC can be raised
either under the automatic route or under the approval route. Under the
approval route, the prospective borrowers are required to send their
requests to the Reserve Bank through their Authorised Dealer (AD) Banks for
examination.
1.3. Authorised dealer: Means a person authorised as an authorised dealer
under subsection (1) of section 10 of the Foreign Exchange Management Act,
1999 (42 of 1999).
1.4. Automatic route: For the automatic route, the cases are examined by
the Authorised Dealer Category-I (AD Category-I) banks.
1.5. Benchmark rate: Benchmark rate in case of foreign currency
denominated ECB/ TC (FCY ECB/TC) refers to 6-month London Interbank Offered
Rate (LIBOR) rate of different currencies or any other 6-month interbank
interest rate applicable to the currency of borrowing, for eg., Euro
Interbank Offered Rate (EURIBOR). Benchmark rate in case of Rupee
denominated ECB (INR ECB) will be prevailing yield of the Government of
India securities of corresponding maturity.
1.6. Designated Authorized
Dealer Category I Bank: It
is the bank branch which is designated by the ECB borrower for meeting the
reporting requirements including obtaining of the Loan Registration Number
(LRN) from the Reserve Bank, exercising the delegated powers under these
guidelines and monitoring of ECB transactions.
1.7. ECB liability-Equity ratio: For the purpose of ECB liability-equity ratio, ECB
amount will include all outstanding amount of all ECBs (other than INR
denominated) and the proposed one (only outstanding ECB amounts in case of
refinancing) while equity will include the paid-up capital and free
reserves (including the share premium received in foreign currency) as per
the latest audited balance sheet. Both ECB and equity amounts will be
calculated with respect to the foreign equity holder. Where there are more
than one foreign equity holders in the borrowing company, the portion of
the share premium in foreign currency brought in by the lender(s) concerned
shall only be considered for calculating the ratio. The ratio will be
calculated as per latest audited balance sheet.
1.8. FATF compliant country: A country that is a member of Financial Action
Task Force (FATF) or a member of a FATF-Style Regional Body; and should not
be 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.
1.9. Foreign Currency
Convertible Bonds (FCCBs): It
refers to foreign currency denominated instruments which are issued in
accordance with the Issue of Foreign Currency Convertible Bonds and
Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993 as
amended from time to time. Issuance of FCCBs shall also conform to other
applicable regulations. Further, FCCBs should be without any warrants
attached.
1.10. Foreign Currency
Exchangeable Bonds (FCEBs): It
refers to foreign currency denominated instruments which are issued in
accordance with the Issue of Foreign Currency Exchangeable Bonds Scheme,
2008 as amended from time to time. FCEBs are exchangeable into equity share
of another company, to be called the Offered Company, in any manner, either
wholly, or partly or on the basis of any equity related warrants attached
to debt instruments. Issuance of FCEBs shall also conform to other
applicable regulations.
1.11. Foreign Equity Holder: It means (a) direct foreign equity holder with
minimum 25% direct equity holding by the lender in the borrowing entity,
(b) indirect equity holder with minimum indirect equity holding of 51%, or
(c) group company with common overseas parent.
1.12. Infrastructure Sector: It has the same meaning as given in the Harmonised
Master List of Infrastructure sub-sectors approved by Government of India
vide Notification F. No. 13/06/2009-INF as amended / updated from time to
time. For the purpose of ECB, “Exploration, Mining and Refinery” sectors
will be deemed as in the infrastructure sector.
1.13. Infrastructure space
companies: Companies in
infrastructure sector, Non-Banking Finance Companies (NBFCs) undertaking
infrastructure financing, Holding Companies/ Core Investment Companies
undertaking infrastructure financing, Housing Finance Companies (HFCs)
regulated by National Housing Bank (NHB) and Port Trusts (constituted under
the Major Port Trusts Act, 1963 or Indian Ports Act, 1908).
1.14. IOSCO compliant country: A country whose securities market regulator is a
signatory to the International Organization of Securities Commission's
(IOSCO’s) Multilateral Memorandum of Understanding (Appendix A Signatories)
or a signatory to bilateral Memorandum of Understanding with the Securities
and Exchange Board of India (SEBI) for information sharing arrangements.
1.15. Person resident in India: It shall have the same meanings as assigned to
them in Sections 2(v) and 2(w) of the Foreign Exchange Management Act, 1999
(FEMA).
1.16. Real estate activities: Any real estate activity involving own or leased
property for buying, selling and renting of commercial and residential
properties or land and also includes activities either on a fee or contract
basis assigning real estate agents for intermediating in buying, selling,
letting or managing real estate. However, this would not include
construction/development of industrial parks/integrated township/SEZ,
purchase/long term leasing of industrial land as part of new
project/modernisation of expansion of existing units or any activity under
‘infrastructure sector’ definition.
2. External Commercial
Borrowings framework: ECBs
are commercial loans raised by eligible resident entities from recognised
non-resident entities and should conform to parameters such as minimum
maturity, permitted and non-permitted end-uses, maximum all-in-cost
ceiling, etc. The parameters apply in totality and not on a standalone
basis.
2.1. The framework for raising loans through ECB
(herein after referred to as the ECB Framework) comprises the following two
options:
Sr.
No.
|
Parameters
|
FCY
denominated ECB
|
INR
denominated ECB
|
i
|
Currency of borrowing
|
Any freely convertible Foreign
Currency
|
Indian Rupee (INR)
|
ii
|
Forms of ECB
|
Loans including bank loans;
floating/ fixed rate notes/ bonds/ debentures (other than fully and
compulsorily convertible instruments); Trade credits beyond 3 years;
FCCBs; FCEBs and Financial Lease.
|
Loans including bank loans;
floating/ fixed rate notes/ bonds/ debentures/ preference shares (other
than fully and compulsorily convertible instruments); Trade credits
beyond 3 years; and Financial Lease. Also, plain vanilla Rupee
denominated bonds issued overseas (RDBs), which can be either placed
privately or listed on exchanges as per host country regulations.
|
iii
|
Eligible borrowers
|
All entities eligible to
receive FDI. Further, the following entities are also eligible to raise
ECB:
a) Port Trusts;
b) Units in SEZ;
c) SIDBI;
d) EXIM Bank; and
e) Registered entities engaged in micro-finance activities, viz.,
registered Not for Profit companies, registered
societies/trusts/cooperatives and Non-Government Organisations (permitted
only to raise INR ECB).
|
iv
|
Recognised lenders
|
The lender should be resident
of FATF or IOSCO compliant country, including on transfer of ECBs.
However,
a) Multilateral and Regional Financial Institutions where India is a
member country will also be considered as recognised lenders;
b) Individuals as lenders can only be permitted if they are foreign
equity holders or for subscription to bonds/debentures listed abroad; and
c) Foreign branches / subsidiaries of Indian banks are permitted as
recognised lenders only for FCY ECB (except FCCBs and FCEBs). Foreign
branches / subsidiaries of Indian banks, subject to applicable prudential
norms, can participate as arrangers/underwriters/market-makers/traders
for Rupee denominated Bonds issued overseas. However, underwriting by
foreign branches/subsidiaries of Indian banks for issuances by Indian
banks will not be allowed.
|
v
|
Minimum Average Maturity
Period
|
Minimum average maturity
period (MAMP) will be 3 years. However, manufacturing sector companies
may raise ECBs with MAMP of 1 year for ECB up to USD 50 million or its
equivalent per financial year. Further, if the ECB is raised from foreign
equity holder and utilised for working capital purposes, general
corporate purposes or repayment of Rupee loans, MAMP will be 5 years. The
call and put option, if any, shall not be exercisable prior to completion
of minimum average maturity.
|
vi
|
All-in-cost ceiling per annum
|
Benchmark rate plus 450 bps
spread.
|
vii
|
Other costs
|
Prepayment charge/ Penal
interest, if any, for default or breach of covenants should not be more
than 2 per cent over and above the contracted rate of interest on the
outstanding principal amount and will be outside the all-in-cost ceiling.
|
viii
|
End-uses (Negative list)
|
The negative list, for which
the ECB proceeds cannot be utilised, would include the following:
a) Real estate activities.
b) Investment in capital market.
c) Equity investment.
d) Working capital purposes except from foreign equity holder.
e) General corporate purposes except from foreign equity holder.
f) Repayment of Rupee loans except from foreign equity holder.
g) On-lending to entities for the above activities.
|
ix
|
Exchange rate
|
Change of currency of FCY ECB
into INR ECB can be at the exchange rate prevailing on the date of the
agreement between the parties concerned for such change or at an exchange
rate, which is less than the rate prevailing on the date of agreement, if
consented to by the ECB lender.
|
For conversion to Rupee,
exchange rate shall be the rate prevailing on the date of settlement.
|
x
|
Hedging provision
|
The entities raising ECB are
required to follow the guidelines for hedging issued, if any, by the
concerned sectoral or prudential regulator in respect of foreign currency
exposure. Infrastructure space companies shall have a board approved risk
management policy. Further, such companies are required to mandatorily
hedge 70 per cent of their ECB exposure in case average maturity of ECB
is less than 5 years. The designated AD Category-I bank shall verify that
70 per cent hedging requirement is complied with during the currency of
ECB and report the position to RBI through Form ECB 2 returns. The
following operational aspects with respect to hedging should be ensured:
a.
Coverage: The ECB borrower will be required to cover
principal as well as coupon through financial hedges. The financial hedge
for all exposures on account of ECB should start from the time of each such
exposure (i.e. the day liability is created in the books of the
borrower).
b.
Tenor
and rollover: A minimum tenor of one
year of financial hedge would be required with periodic rollover duly
ensuring that the exposure on account of ECB is not unhedged at any point
during the currency of ECB.
c.
Natural
Hedge: Natural hedge, in lieu
of financial hedge, will be considered only to the extent of offsetting
projected cash flows / revenues in matching currency, net of all other
projected outflows. For this purpose, an ECB may be considered naturally
hedged if the offsetting exposure has the maturity/cash flow within the
same accounting year. Any other arrangements/ structures, where revenues
are indexed to foreign currency will not be considered as natural hedge.
|
The overseas investors are
eligible to hedge their exposure in Rupee through permitted derivative
products with AD Category I banks in India. The investors can also access
the domestic market through branches / subsidiaries of Indian banks
abroad or branches of foreign banks with Indian presence on a back to
back basis.
|
xi
|
Change of currency of
borrowing
|
Change of currency of ECB from
one freely convertible foreign currency to any other freely convertible
foreign currency as well as to INR is freely permitted.
|
Change of currency from INR to
any freely convertible foreign currency is not permitted.
|
Note: ECB framework is not applicable in respect of the
investment in Non-Convertible Debentures in India made by Registered
Foreign Portfolio Investors.
2.2. Limit and leverage: Under the aforesaid framework, all eligible
borrowers can raise ECB up to USD 750 million or equivalent per financial
year under auto route. Further, in case of FCY denominated ECB raised from
direct foreign equity holder ECB liability-equity ratio for ECBs raised
under the automatic route cannot exceed 7:1. However, this ratio will not
be applicable if outstanding amount of all ECBs, including proposed one, is
up to USD 5 million or equivalent. Further, the borrowing entities will
also be governed by the guidelines on debt equity ratio issued, if any, by
the sectoral or prudential regulator concerned.
3. Issuance of Guarantee, etc.
by Indian banks and Financial Institutions: Issuance of any type of guarantee by Indian banks,
All India Financial Institutions and NBFCs relating to ECB is not
permitted. Further, financial intermediaries (viz., Indian banks, All India
Financial Institutions, or NBFCs) shall not invest in FCCBs/ FCEBs in any
manner whatsoever.
4. Parking of ECB proceeds: ECB proceeds are permitted to be parked abroad as
well as domestically in the manner given below:
4.1. Parking of ECB proceeds
abroad: ECB proceeds meant only
for foreign currency expenditure can be parked abroad pending utilization.
Till utilisation, these funds can be invested in the following liquid
assets (a) deposits or Certificate of Deposit or other products offered by
banks rated not less than AA (-) by Standard and Poor/ Fitch IBCA or Aa3 by
Moody’s; (b) Treasury bills and other monetary instruments of one-year
maturity having minimum rating as indicated above and (c) deposits with
foreign branches/ subsidiaries of Indian banks abroad.
4.2. Parking of ECB proceeds
domestically: ECB proceeds meant for
Rupee expenditure should be repatriated immediately for credit to their Rupee
accounts with AD Category I banks in India. ECB borrowers are also allowed
to park ECB proceeds in term deposits with AD Category I banks in India for
a maximum period of 12 months cumulatively. These term deposits should be
kept in unencumbered position.
5. Procedure of raising ECB: All ECBs can be raised under the automatic route
if they conform to the parameters prescribed under this framework. For
approval route cases, the borrowers may approach the RBI with an
application in prescribed format (Form ECB – Annex
I) for examination through their AD Category I bank. Such cases
shall be considered keeping in view the overall guidelines, macroeconomic
situation and merits of the specific proposals. ECB proposals received in
the Reserve Bank above certain threshold limit (refixed from time to time)
would be placed before the Empowered Committee set up by the Reserve Bank.
The Empowered Committee will have external as well as internal members and
the Reserve Bank will take a final decision in the cases taking into
account recommendation of the Empowered Committee. Entities desirous to
raise ECB under the automatic route may approach an AD Category I bank with
their proposal along with duly filled in Form ECB.
6. Reporting Requirements: Borrowings under ECB Framework are subject to
following reporting requirements apart from any other specific reporting
required under the framework:
6.1. Loan Registration Number
(LRN): Any draw-down in respect
of an ECB should happen only after obtaining the LRN from the Reserve Bank.
To obtain the LRN, borrowers are required to submit duly certified Form
ECB, which also contains terms and conditions of the ECB, in duplicate to the
designated AD Category I bank. In turn, the AD Category I bank will forward
one copy 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 (Contact numbers 022-26572513
and 022-26573612). Copies of loan agreement for raising ECB are not
required to be submitted to the Reserve Bank.
6.2. Changes in terms and
conditions of ECB: Changes
in ECB parameters in consonance with the ECB norms, including reduced
repayment by mutual agreement between the lender and borrower, should be
reported to the DSIM through revised Form ECB at the earliest, in any case
not later than 7 days from the changes effected. While submitting revised
Form ECB the changes should be specifically mentioned in the communication.
6.3. Monthly Reporting of actual
transactions: The borrowers are required
to report actual ECB transactions through Form
ECB 2 Return (Annex II) through the AD Category I bank on
monthly basis so as to reach DSIM within seven working days from the close
of month to which it relates. Changes, if any, in ECB parameters should
also be incorporated in Form ECB 2 Return.
6.4. Late Submission Fee (LSF)
for delay in reporting:
6.4.1. Any borrower, who is
otherwise in compliance of ECB guidelines, can regularize the delay in
reporting of drawdown of ECB proceeds before obtaining LRN or delay in
submission of Form ECB 2 returns, by payment of late submission fees as
detailed in the following matrix:
Sr.
No.
|
Type
of Return/Form
|
Period
of delay
|
Applicable
LSF
|
1
|
Form ECB 2
|
Up to 30 calendar days from
due date of submission
|
INR 5,000
|
2
|
Form ECB 2/Form ECB
|
Up to three years from due
date of submission/date of drawdown
|
INR 50,000 per year
|
3
|
Form ECB 2/Form ECB
|
Beyond three years from due
date of submission/date of drawdown
|
INR 100,000 per year
|
6.4.2. The borrower, through its
AD bank, may pay the LSF by way of demand draft in favour of “Reserve Bank
of India” or any other mode specified by the Reserve Bank. Such payment
should be accompanied with the requisite return(s). Form ECB and Form ECB 2
returns reporting contraventions will be treated separately. Non-payment of
LSF will be treated as contravention of reporting provision and shall be
subject to compounding or adjudication as provided in FEMA 1999 or
regulations/rules framed thereunder.
6.5. Standard Operating
Procedure (SOP) for Untraceable Entities: The
following SOP has to be followed by designated AD Category-I banks in case
of untraceable entities who are found to be in contravention of reporting
provisions for ECBs by failing to submit prescribed return(s) under the ECB
framework, either physically or electronically, for past eight quarters or
more.
i. Definition: Any borrower who has raised ECB will be treated as
‘untraceable entity’, if entity/auditor(s)/director(s)/ promoter(s) of entity
are not reachable/responsive/reply in negative over email/letters/phone for
a period of not less than two quarters with documented communication/
reminders numbering 6 or more and it fulfills both of the following
conditions:
a.
Entity
not found to be operative at the registered office address as per records
available with the AD Bank or not found to be operative during the visit by
the officials of the AD Bank or any other agencies authorized by the AD
bank for the purpose;
b.
Entities
have not submitted Statutory Auditor’s Certificate for last two years or
more;
ii. Action: The followings actions are to be undertaken in
respect of ‘untraceable entities’:
a.
File
Revised Form ECB, if required, and last Form ECB 2 Return without
certification from company with ‘UNTRACEABLE ENTITY’ written in bold on
top. The outstanding amount will be treated as written-off from external
debt liability of the country but may be retained by the lender in its
books for recovery through judicial/ non-judicial means;
b.
No
fresh ECB application by the entity should be examined/processed by the AD
bank;
c.
Directorate
of Enforcement should be informed whenever any entity is designated
‘UNTRACEABLE ENTITY’; and
d.
No
inward remittance or debt servicing will be permitted under auto route.
7. Powers delegated to AD
Category I banks to deal with ECB cases: The
designated AD Category I banks can approve any requests from the borrowers
for changes in respect of ECBs, except for FCCBs/FCEBs, duly ensuring that
the changed conditions, including change in name of borrower/lender,
transfer of ECB and any other parameters, comply with extant ECB norms and
are with the consent of lender(s). Further, the following changes can be
undertaken under automatic route:
7.1. Change of the AD Category I
bank: AD Category I bank can be
changed subject to obtaining no objection certificate from the existing AD
Category I bank.
7.2. Cancellation of LRN: The designated AD Category I banks may directly
approach DSIM for cancellation of LRN for ECBs contracted, subject to
ensuring that no draw down against the said LRN has taken place and the
monthly ECB-2 returns till date in respect of the allotted LRN have been
submitted to DSIM.
7.3. Refinancing of existing
ECB: The designated AD Category
I bank may allow refinancing of existing ECB by raising fresh ECB provided
the outstanding maturity of the original borrowing (weighted outstanding
maturity in case of multiple borrowings) is not reduced and all-in-cost of
fresh ECB is lower than the all-in-cost (weighted average cost in case of
multiple borrowings) of existing ECB. Further, refinancing of ECBs raised
under the previous ECB framework may also be permitted, subject to
additionally ensuring that the borrower is eligible to raise ECB under the
extant framework. Raising of fresh ECB to part refinance the existing ECB
is also permitted subject to same conditions. Indian banks are permitted to
participate in refinancing of existing ECB, only for highly rated
corporates (AAA) and for Maharatna/Navratna public sector undertakings.
7.4. Conversion of ECB into
equity: Conversion of ECBs,
including those which are matured but unpaid, into equity is permitted
subject to the following conditions:
i. The activity of the borrowing
company is covered under the automatic route for FDI or Government approval
is received, wherever applicable, for foreign equity participation as per
extant FDI policy.
ii. The conversion, which should
be with the lender’s consent and without any additional cost, should not
result in contravention of eligibility and breach of applicable sector cap
on the foreign equity holding under FDI policy;
iii. Applicable pricing
guidelines for shares are complied with;
iv. In case of partial or full
conversion of ECB into equity, the reporting to the Reserve Bank will be as
under:
a.
For
partial conversion, the converted portion is to be reported in Form FC-GPR
prescribed for reporting of FDI flows, while monthly reporting to DSIM in
Form ECB 2 Return will be with suitable remarks, viz., "ECB partially
converted to equity".
b.
For
full conversion, the entire portion is to be reported in Form FC-GPR, while
reporting to DSIM in Form ECB 2 Return should be done with remarks “ECB
fully converted to equity”. Subsequent filing of Form ECB 2 Return is not
required.
c.
For
conversion of ECB into equity in phases, reporting through Form FC-GPR and
Form ECB 2 Return will also be in phases.
v. If the borrower concerned has
availed of other credit facilities from the Indian banking system,
including foreign branches/subsidiaries of Indian banks, the applicable
prudential guidelines issued by the Department of Banking Regulation of
Reserve Bank, including guidelines on restructuring are complied with;
vi. Consent of other lenders, if
any, to the same borrower is available or atleast information regarding
conversions is exchanged with other lenders of the borrower.
vii. For conversion of ECB dues
into equity, the exchange rate prevailing on the date of the agreement
between the parties concerned for such conversion or any lesser rate can be
applied with a mutual agreement with the ECB lender. It may be noted that
the fair value of the equity shares to be issued shall be worked out with
reference to the date of conversion only.
7.5. Security for raising ECB: AD Category I banks are permitted to allow
creation/ cancellation of charge on immovable assets, movable assets,
financial securities and issue of corporate and/ or personal guarantees in
favour of overseas lender / security trustee, to secure the ECB to be
raised / raised by the borrower, subject to satisfying themselves that:
i. the underlying ECB is in
compliance with the extant ECB guidelines,
ii. there exists a security
clause in the Loan Agreement requiring the ECB borrower to create/ cancel
charge, in favour of overseas lender / security trustee, on immovable
assets / movable assets / financial securities / issuance of corporate and
/ or personal guarantee, and
iii. No objection certificate,
as applicable, from the existing lenders in India has been obtained in case
of creation of charge.
Once the aforesaid stipulations
are met, the AD Category I bank may permit creation of charge on immovable
assets, movable assets, financial securities and issue of corporate and /
or personal guarantees, during the currency of the ECB with security
co-terminating with underlying ECB, subject to the following:
i. Creation of Charge on
Immovable Assets: The arrangement shall be
subject to the following:
a.
Such
security shall be subject to provisions contained in the Foreign Exchange
Management (Acquisition and Transfer of Immovable Property in India)
Regulations, 2000.
b.
The
permission should not be construed as a permission to acquire immovable
asset (property) in India, by the overseas lender/ security trustee.
c.
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 ECB.
ii. Creation of Charge on
Movable Assets: In the event of
enforcement/ invocation of the charge, the claim of the lender, whether the
lender takes over the movable asset or otherwise, will be restricted to the
outstanding claim against the ECB. Encumbered movable assets may also be
taken out of the country subject to getting ‘No Objection Certificate’ from
domestic lender/s, if any.
iii. Creation of Charge over
Financial Securities: The
arrangements may be permitted subject to the following:
a) Pledge of shares of the
borrowing company held by the promoters as well as in domestic associate
companies of the borrower is permitted. Pledge on other financial
securities, viz. bonds and debentures, Government Securities, Government
Savings Certificates, deposit receipts of securities and units of the Unit
Trust of India or of any mutual funds, standing in the name of ECB
borrower/promoter, is also permitted.
b) In addition, security
interest over all current and future loan assets and all current assets
including cash and cash equivalents, including Rupee accounts of the
borrower with ADs in India, standing in the name of the borrower/promoter,
can be used as security for ECB. The Rupee accounts of the
borrower/promoter can also be in the form of escrow arrangement or debt
service reserve account.
c) In case of invocation of
pledge, transfer of financial securities shall be in accordance with the
extant FDI/FII policy including provisions relating to sectoral cap and
pricing as applicable read with the Foreign Exchange Management (Transfer
or Issue of Security by a Person Resident outside India) Regulations, 2000.
iv. Issue of Corporate or
Personal Guarantee: The
arrangement shall be subject to the following:
a) A copy of Board Resolution
for the issue of corporate guarantee for the company issuing such
guarantee, specifying name of the officials authorised to execute such
guarantees on behalf of the company or in individual capacity should be
obtained.
b) Specific requests from
individuals to issue personal guarantee indicating details of the ECB
should be obtained.
c) Such security shall be
subject to provisions contained in the Foreign Exchange Management
(Guarantees) Regulations, 2000.
d) ECB can be credit enhanced /
guaranteed / insured by overseas party/ parties only if it/ they fulfil/s
the criteria of recognised lender under extant ECB guidelines.
7.6. Additional Requirements: While permitting changes under the delegated
powers, the AD Category I banks should ensure that:
i. The changes permitted are in
conformity with the applicable ceilings / guidelines and the ECB continues
to be in compliance with applicable guidelines. It should also be ensured
that if the ECB borrower has availed of credit facilities from the Indian
banking system, including foreign branches/subsidiaries of Indian banks,
any extension of tenure of ECB (whether matured or not) shall be subject to
applicable prudential guidelines issued by Department of Banking Regulation
of Reserve Bank including guidelines on restructuring.
ii. The changes in the terms and
conditions of ECB allowed by the ADs under the powers delegated and / or
changes approved by the Reserve Bank should be reported to the DSIM through
revised Form ECB at the earliest, in any case not later than 7 days from the
changes effected. While submitting revised Form ECB to the DSIM, the
changes should be specifically mentioned in the communication. Further,
these changes should also get reflected in the Form ECB 2 returns
appropriately.
8. Special Dispensations under
the ECB framework:
8.1. ECB facility for Oil
Marketing Companies: Notwithstanding
the provisions contained in paragraph 2.1 (viii), 2.1 (x) and 2.2 above,
Public Sector Oil Marketing Companies (OMCs) can raise ECB for working
capital purposes with minimum average maturity period of 3 years from all
recognized lenders under the automatic route without mandatory hedging and
individual limit requirements. The overall ceiling for such ECBs shall be
USD 10 billion or equivalent. However, OMCs should have a Board approved
forex mark to market procedure and prudent risk management policy, for such
ECBs. All other provisions under the ECB framework will be applicable to
such ECBs.
8.2. ECB facility for Startups: AD Category-I banks are permitted to allow
Startups to raise ECB under the automatic route as per the following
framework:
i. Eligibility: An entity recognised as a Startup by the Central
Government as on date of raising ECB.
ii. Maturity: Minimum average maturity period will be 3 years.
iii. Recognised lender: Lender / investor shall be a resident of a FATF
compliant country. However, foreign branches/subsidiaries of Indian banks
and overseas entity in which Indian entity has made overseas direct
investment as per the extant Overseas Direct Investment Policy will not be
considered as recognized lenders under this framework.
iv. Forms: The borrowing can be in form of loans or
non-convertible, optionally convertible or partially convertible preference
shares.
v. 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.
vi. 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.
vii. All-in-cost: Shall be mutually agreed between the borrower and
the lender.
viii. End uses: For any expenditure in connection with the
business of the borrower.
ix. Conversion into equity: Conversion into equity is freely permitted subject
to Regulations applicable for foreign investment in Startups.
x. 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. Further,
issuance of corporate or personal guarantee is allowed. Guarantee issued by
a non-resident(s) is allowed only if such parties qualify as lender under
ECB for Startups. However, 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.
xi. 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.
Note: 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.
xii. 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.
xiii. Other Provisions: 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. However, provisions on leverage ratio and ECB liability:
Equity ratio will not be applicable. Further, the Start-ups as defined
above [8.2. (i)] as well as other start-ups which do not comply with the
aforesaid definition but are eligible to receive FDI, can also raise ECBs
under the general ECB route/framework.
9. Borrowing by Entities under
Investigation: All entities against which
investigation / adjudication / appeal by the law enforcing agencies for
violation of any of the provisions of the Regulations under FEMA pending,
may raise ECBs as per the applicable norms, if they are otherwise eligible,
notwithstanding the pending investigations / adjudications / appeals,
without prejudice to the outcome of such investigations / adjudications /
appeals. The borrowing entity shall inform about pendency of such
investigation / adjudication / appeal to the AD Category-I bank / RBI as
the case may be. Accordingly, in case of all applications where the
borrowing entity has indicated about the pending investigations /
adjudications / appeals, the AD Category I Banks / Reserve Bank while
approving the proposal shall intimate the agencies concerned by endorsing a
copy of the approval letter.
10. ECB by entities under
restructuring: An entity which is under
restructuring scheme/ corporate insolvency resolution process can raise ECB
only if specifically permitted under the resolution plan.
11. 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 RBI’s website, on a monthly basis, with a lag of one month to
which it relates.
12. Compliance with the
guidelines: The primary responsibility
for ensuring that the borrowing is in compliance with the applicable
guidelines is that of the borrower concerned. Any contravention of the
applicable provisions of ECB guidelines will invite penal action under the
FEMA. The designated AD Category I bank is also expected to ensure
compliance with applicable ECB guidelines by their constituents.
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