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External Commercial Borrowings (ECB) in India
External Commercial Borrowings are commercial loans widely used by eligible resident entities who raise ECBs from recognised non-resident entities. ECBs should adhere to the criteria like minimum maturity period, maximum all-in-cost ceiling, permitted and non-permitted end-uses, etc. ECBs are governed by the Foreign Exchange Management Act (FEMA) Notification No. 3R & 8.
Draw-down with respect to an ECB is possible only after getting a Loan Registration Number (LRN) from the Reserve Bank. Changes in ECB specifications, in agreement with the ECB norms, should be reported to the RBI at the earliest by way of Revised Form ECB. In any case, the reporting should be made not later than 7 days from the changes effected. Also, the changes should be mentioned explicitly in the communication while submitting Revised Form ECB.
ICICI Bank has a comprehensive set up in place for Capital Account Transactions. The experienced team at ICICI Bank offers you numerous services for smooth end-to-end processing of your ECB transactions. Leave all hassles of pre and post-transaction with us and watch your funds getting credited.
You can raise ECB in INR or any freely convertible Foreign Currency. ECBs can be raised under the automatic route as well as the approval route, under the ECB framework.
Under Automatic Route, the AD Category-I Bank examines the case and gives the approval. Entities wanting to raise ECB under the automatic route may approach an AD Category-I Bank with their proposal along with a duly filled Form ECB. Post approval by AD Category-I Bank, the application along with Form ECB is sent to RBI for issuance of LRN.
Under Approval Route, prospective borrowers send in their requests to the RBI through their AD Category-I Banks for examination. Such cases are considered based on macroeconomic situation and merits of the specific proposals, keeping in view the overall guidelines.
Prominent features
Streamlined Approvals
Smooth ECB approval process in place
Step-by-Step Advisory
Guidance for filing applications
LRN Issuance Assistance
Speedy LRN issuance through RBI liasioning
Reduced Risks
Hedging solutions for mitigating risks
Benefits
- Get your FDI settled seamlessly from 29+ currencies
- A team of Bank’s trained professionals to take care of your pre and post transaction related requirements
- Flawless and simplified regulatory reporting
- Team of experienced professionals to guide you with procedure and documentation
- Effective co-ordination with foreign banks to quickly obtain 6-pointer KYC
- Regular interaction with RBI.
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.
External Commercial Borrowings are commercial loans raised by eligible resident entities from recognised non-resident entities.
ECBs should conform to factors like:
- minimum maturity
- permitted and non-permitted end uses
- maximum all-in-cost ceiling, etc.
Different types of ECBs are as follows:
- Loans including bank loans
- Securitised instruments (such as floating rate notes, fixed-rate bonds, and non-convertible, partially convertible or optionally convertible preference shares/debentures)
- Trade Credits beyond 3 years
- Foreign Currency Convertible Bonds (FCCBs)
- Financial Lease and
- Foreign Currency Exchangeable Bonds (FCEB)
Foreign Equity Holder means:
- Direct foreign equity holder holding a minimum 25% equity in the borrowing company
- Indirect foreign equity holder holding a minimum 51% equity in the borrowing company
- Group company with a common overseas parent
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.
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.
| Sr. No. | Type of Return/Form | Period of delay | Applicable LSF |
|---|---|---|---|
| 1 | Form ECB 2 | Up to 30 calender 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 5,000 per year |
| 3 | Form ECB 2/Form ECB | Beyond three years from due date of submission/date of drawdown | INR 100,000 per year |
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.
