{"id":7771,"date":"2021-08-19T10:20:24","date_gmt":"2021-08-19T10:20:24","guid":{"rendered":"https:\/\/swaritadvisors.com\/blog\/?p=7771"},"modified":"2021-08-19T10:32:28","modified_gmt":"2021-08-19T10:32:28","slug":"external-commercial-borrowings-under-new-framework","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/blog\/external-commercial-borrowings-under-new-framework\/","title":{"rendered":"External Commercial Borrowings Under New Framework \u2013 An Overview"},"content":{"rendered":"\n<p class=\"has-drop-cap\">External\nCommercial Borrowings (ECB) means borrowing by an eligible resident company\nfrom outside India as per the framework designed by the RBI (Reserve Bank of\nIndia) in discussion with the Indian Government. The term has been defined in <strong><em>Section\n2 (iv) of FEMA (Borrowing &amp; Lending) Regulations, 2018<\/em><\/strong>. India, a\ndeveloping nation, has encouraged the inward flow of foreign capital or money\nfor many reasons. The most famous methods to bring foreign capital are Foreign\nPortfolio Investment (FPI), Foreign Direct Investment (FDI), and ECB. In this\nblog, we will discuss about External Commercial Borrowings (ECB).<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3ab26f4fb17\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3ab26f4fb17\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/blog\/external-commercial-borrowings-under-new-framework\/#What_are_the_Types_of_External_Commercial_Borrowings\" title=\"What\nare the Types of External Commercial Borrowings?\">What\nare the Types of External Commercial Borrowings?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/blog\/external-commercial-borrowings-under-new-framework\/#What_are_the_Benefits_of_External_Commercial_Borrowings\" title=\"What\nare the Benefits of External Commercial Borrowings?\">What\nare the Benefits of External Commercial Borrowings?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/blog\/external-commercial-borrowings-under-new-framework\/#Role_of_FEMA_Regulations\" title=\"Role of\nFEMA Regulations\">Role of\nFEMA Regulations<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/blog\/external-commercial-borrowings-under-new-framework\/#Prohibition_on_the_Drawing_of_External_Commercial_Borrowings\" title=\"Prohibition on the Drawing of External Commercial Borrowings\">Prohibition on the Drawing of External Commercial Borrowings<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/swaritadvisors.com\/blog\/external-commercial-borrowings-under-new-framework\/#Changes_in_the_New_Regulations\" title=\"Changes in the New Regulations\">Changes in the New Regulations<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/swaritadvisors.com\/blog\/external-commercial-borrowings-under-new-framework\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_Types_of_External_Commercial_Borrowings\"><\/span>What\nare the Types of External Commercial Borrowings?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>ECBS\ncan be categorised into foreign currency designated ECB and rupee (INR)\ndenominated ECB.<\/p>\n\n\n\n<ol><li><strong><em>INR Denominated ECB<\/em><\/strong>:\nIn this type, ECB is raised in INR (Indian Rupee), and it comprises trade\ncredits beyond 3 years, bonds\/floating\/debentures\/fixed-rate notes (other than\ncompletely and forcibly convertible instruments), loans comprising financial\nlease, bank loans, &amp; plain vanilla Rupee denominated bonds issued overseas.<\/li><li><strong><em>FCY Denominated ECB<\/em><\/strong>:\nIn this type, External Commercial Borrowings are raised in any convertible\nforeign currency. It includes FCCBs (Foreign Currency Convertible Bonds), FCEB\n(Foreign Currency Exchangeable Bond), loans comprising trade credits, bank\nloans beyond 3 years, bonds\/floating\/debentures\/fixed-rate notes (other than\nentirely &amp; forcibly convertible instruments), and financial lease.<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_Benefits_of_External_Commercial_Borrowings\"><\/span>What\nare the Benefits of External Commercial Borrowings?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ol><li><strong><em>Lower Interest Rates<\/em><\/strong>:\nAs an outcome of a diverse investor base, companies tend to avail loans at\nminimum interest rates, which they wouldn&#8217;t have got within the local limits.<\/li><li><strong><em>Enhance Economy<\/em><\/strong>:\nThe Government can manage the funds\u2019 flow more towards a particular sector of\nthe economy which will enhance the economy.<\/li><li><strong><em>Diverse Investor Base<\/em><\/strong>:\nThe worldwide arena aids the companies to get access to diverse investors as\nper their requirements.<\/li><li><strong><em>Fulfilling Larger Necessities<\/em><\/strong>:\nSince the possibility of borrowing is increased by crossing local limits, it\naids the companies to fulfil their requirements which might not be achievable\nwithin local limits.<\/li><li><strong><em>Debt<\/em><\/strong>&#8211;<strong><em>oriented\nfunds<\/em><\/strong>: External Commercial Borrowings not necessarily be\nequity-oriented; that is it will not dilute the proprietorship of the present\nmembers. This will not give voting powers to the lender &amp; retain the\ncontrol of the present stakeholders of the company.<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Role_of_FEMA_Regulations\"><\/span>Role of\nFEMA Regulations<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>FEMA,\n1999<\/em><\/strong>; Foreign Exchange Management (Borrowing &amp;\nLending) Regulations, 2018, and Master Directions on ECBs, Trade Credit &amp;\nStructured Obligations issued by the RBI provide for the ECBs regulation. The\nReserve Bank of India has a right to issue Master Directions as per Section\n10(4) &amp; Section 11 (1) of the EMA Act, 1999.<\/p>\n\n\n\n<p><strong><em>Objective\nof the FEMA Regulations<\/em><\/strong><\/p>\n\n\n\n<ul><li>To rationalise the present\nframework of External Commercial Borrowings;<\/li><li>To develop or improve the ease\nof doing business in India;<\/li><li>To regulate lending &amp;\nborrowing transactions between a party staying in India and a party living\noutside India;<\/li><li>To strengthen the Anti-Money\nLaundering or Combating the Financing of Terrorism framework.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Prohibition_on_the_Drawing_of_External_Commercial_Borrowings\"><\/span>Prohibition on the Drawing of External Commercial Borrowings<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Master\nDirections by the Reserve Bank of India delivers for restricted end-uses, i.e.,\na negative list that prohibits the utilisation of ECB for definite purposes as\nenlisted below:<\/p>\n\n\n\n<ul><li>Equity Investment;<\/li><li>Real Estate Activities;<\/li><li>Investment in the Capital\nMarket;<\/li><li>Repayment of Rupee loans, except\nin the case of ECB raised for repayment of Rupee loans availed domestically for\ncapital expenses and purposes other than capital expenditure;<\/li><li>Working capital purposes,\nexcept in the case of ECB increased from foreign equity holders, are used for\nworking capital purposes, general corporate purposes, or repayment of Rupee\nloans &amp; ECB increased for working capital or general corporate purposes;<\/li><li>General corporate purposes,\nexcept in the case of ECB increased from foreign equity holders, are used for\nworking capital purposes, repayment of Rupee loans, or general corporate\npurposes, and ECB evaluated for working capital or general corporate purposes;<\/li><li>On-lending to companies for the\nabove activities, except in the case of ECB increased for NBFCs (Non-Banking\nFinancial Companies) for general corporate or working capital purposes, for\nrepayment of Rupee loans availed domestically for capital spending &amp;\npurposes other than the capital expenditure.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Changes_in_the_New_Regulations\"><\/span>Changes in the New Regulations<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" loading=\"lazy\" src=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/08\/image001-18.png\" alt=\"Changes in the New Regulations\" class=\"wp-image-7775\" width=\"499\" height=\"499\" srcset=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/08\/image001-18.png 998w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/08\/image001-18-150x150.png 150w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/08\/image001-18-300x300.png 300w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/08\/image001-18-768x767.png 768w\" sizes=\"(max-width: 499px) 100vw, 499px\" \/><\/figure><\/div>\n\n\n\n<ul><li><strong><em>Eligibility for Lenders<\/em><\/strong>: Like borrowers, the lenders were also classified into tracks. But, in the new policy, the lenders&#8217; eligibility has been diversified as discussed previously.<\/li><li><strong><em>Eligibility for Borrowers<\/em><\/strong>: Earlier, the companies are categorised into Track I, II, and III to get ECBs. Now, the policy has been liberalised by permitting companies eligible for FDI to get ECBs. As an outcome, even certain <strong><a href=\"https:\/\/swaritadvisors.com\/limited-liability-partnership-registration\" class=\"text-primary\">Limited Liability Partnerships (LLPs)<\/a><\/strong> are now entitled to get ECB which was earlier not possible.<\/li><li><strong><em>End-Use Restriction<\/em><\/strong>: Exclusion on drawing of ECBs as we mentioned above in the new framework.<\/li><li><strong><em>Liquidity Equity Ratio (LER)<\/em><\/strong>: The new policy delivers that the ECB Liability Equity Ratio under automatic route cannot surpass 7:1 in the case of foreign currency-denominated ECB raised from a foreign equity holder. But, this situation will not apply if the due amount of all ECB, comprising the present ECB, doesn\u2019t surpass 5 million US dollars or its equivalent.<\/li><li><strong><em>Companies under Restructuring<\/em><\/strong>: A company facing a corporate insolvency resolution process or under a restructuring scheme can increase External Commercial Borrowings only if the resolution plan explicitly permits it to do so. Previously, it was compulsory to take the approval of the <strong><em>Joint Lender Forum or Corporate Debt Restructuring Empowered Committee<\/em><\/strong>.<\/li><li><strong><em>MAMP (Minimum Average Maturity Period)<\/em><\/strong>: MAMP has now been made consistent by prescribing a time of 3 years. But, there can be exceptions in various cases as mentioned below:<ol><li>MAMP shall be 10 years in the matter of ECB is raised for working capital or general corporate purposes or on-lending by <strong><a class=\"text-primary\" href=\"https:\/\/swaritadvisors.com\/nbfc-registration\">NBFCs<\/a><\/strong> for these purposes;<\/li><li>MAMP can be 1 year for manufacturing sector companies or entities who raise External Commercial Borrowings up to 50 million US dollars to its equivalent per Financial Year (F.Y.);<\/li><li>MAMP shall be 10 years in the matter of ECB raised for repayment of Rupee loans served nationally for purposes other than capital expenditure or on-lending by Non-Banking Financial Companies for the same purpose;<\/li><li>MAMP shall be 7 years in the matter ECB is raised for repayment of Rupee loans availed domestically for capital expenditure or on-lending by Non-Banking Financial Companies for the same purpose;<\/li><li>MAMP shall be 5 years if <strong>ECB<\/strong><sup><a class=\"text-primary\" href=\"https:\/\/en.wikipedia.org\/wiki\/External_commercial_borrowing\"><strong>[1]<\/strong><\/a><\/sup> raised from foreign equity or general corporate purposes or on-lending by Non-Banking Financial Companies for working capital or general corporate purposes.<\/li><\/ol><\/li><li><strong><em>Form for Reporting ECB<\/em><\/strong>: Earlier, Form 83 was submitted for reporting ECB, whereas now Form ECB needs to be submitted to report ECB in case they require raising funds through the consent route.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>External Commercial Borrowings is one of the rising sources for getting foreign capital to India. With the beginning of a new framework that is Master Directions issued by the Reserve Bank of India, the norms have been relaxed substantially, which has improved the effortlessness of doing business in India. Provisions of the automatic route, increased possibility for eligible borrowers &amp; lenders, simpler categorisation of ECBs, regularising delays by submitting late fee reduced hedging necessities, etc., will confidently prove to be a benefit for the economy in the future. This will aid to develop resident companies, which will enhance the economy ultimately.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/blog\/rbi-guidelines-on-opening-of-current-accounts-by-banks\/\">RBI Announces Guidelines to Implement its Circular on Opening of Current Accounts by Banks<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>External Commercial Borrowings (ECB) means borrowing by an eligible resident company from outside India as per the framework designed by the RBI (Reserve Bank of India) in discussion with the Indian Government. The term has been defined in Section 2 (iv) of FEMA (Borrowing &amp; Lending) Regulations, 2018. India, a developing nation, has encouraged the [&hellip;]<\/p>\n","protected":false},"author":6,"featured_media":7772,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[56],"tags":[815],"acf":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/7771"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/comments?post=7771"}],"version-history":[{"count":18,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/7771\/revisions"}],"predecessor-version":[{"id":7794,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/7771\/revisions\/7794"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media\/7772"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media?parent=7771"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/categories?post=7771"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/tags?post=7771"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}