External Commercial Borrowings or ECB are 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. Importance of an ECB:

• Interest rates are lower, compared to domestic funds
• ECBs provide an opportunity to borrow a large volume of funds
• The funds are available for a relatively long term
• Corporates can raise ECBs from internationally recognised sources, such as banks, export credit agencies, international capital markets etc.
• ECBs are in the form of foreign currencies. Hence, they enable the corporates to have foreign currencies, to meet the import of machineries etc.

Any draw-down with respect to an ECB, as well as payment of any fees/charges for raising an ECB, should happen only after obtaining the Loan Registration Number (LRN) from RBI. To get the LRN, borrowers are required to submit a duly certified Form ECB, in duplicate that also contains the terms and conditions of ECB, to the designated Authorised Dealer (AD) Category I Bank.

The AD Category-I Bank will send 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.

Benefits of an ECB are:

• Interest rates are lower, compared to the domestic funds
• ECBs provides an opportunity to borrow a large volume of funds
• The funds are available for a relatively long term
• Corporates can raise ECBs from internationally recognised sources, such as banks, export credit agencies, international capital markets etc.
• ECBs are in the form of foreign currencies. Hence, they enable corporates to have foreign currency to meet the import of machineries etc.

All eligible borrowers can raise an ECB up to USD 750 million or equivalent, per financial year, under the automatic route. Further, in case of FCY denominated ECB raised from a direct foreign equity holder, an ECB liability-equity ratio for the ECB raised under the automatic route cannot exceed 7:1.

All entities eligible to receive a FDI. Further, the following entities are also eligible to raise an ECB:

• Port Trusts;
• Units in SEZ;
• SIDBI; and
• EXIM Bank of India.

Unlike an ODI certificate, there is no separate ECB certificate. However, a Loan Registration Number (LRN) will be generated, while availing the ECB from a foreign lender.

Any draw-down in respect of an ECB, as well as payment of any fees/charges for raising an ECB, should happen only after obtaining the LRN from RBI. To get the LRN, borrowers are required to submit a duly certified Form ECB in duplicate that also contains the terms and conditions of ECB to the designated AD Category I Bank.

The AD Category-I Bank will send 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.

The borrowers are required to report actual ECB transactions, correctly and fully, through duly certified Form ECB 2 through AD Category-I bank to DSIM as per the periodicity specified by the RBI. The Form ECB 2 should 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 suitably.

No, any entity which is recognised as a Startup by the Central Government as on date of raising ECB, would be eligible to raise ECB, irrespective of its business activities.

All-in-cost shall include the rate of interest, other fees, expenses, charges, guarantee fees, Export Credit Agency (ECA) charges, whether paid in foreign currency or INR but will not involve 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.

Recognised lender/investor who is a resident of Financial Action Task Force (FATF) compliant country is permitted to lend while raising ECB by Startup. However, foreign branches or subsidiaries of Indian banks and overseas entities in which Indian entities have made overseas direct investment as per the existing Overseas Direct Investment Policy would not be considered as recognised lenders under this framework. Any person/entity which already is a foreign investor in the Startup is also allowed to lend.

The ECBs can be freely converted into equity subject to regulations applicable for foreign investment in Startups.

The borrowing per Startup is limited to USD 3 million or equivalent per financial year either in Indian currency or any convertible foreign currency or combination of both.

The borrowers are required to report the actual ECB transactions by Form ECB 2 Return through the AD Category I Bank monthly 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.

Yes, payment of LSF is compulsory for delay in reporting of ECB-2. Non-payment of LSF will be treated as a contravention of reporting provision and shall be subject to compounding or adjudication as provided in FEMA 1999 or regulations/rules framed thereunder.