An ECB refers to commercial loans [in the form of bank loans, buyers’ credit, suppliers’ credit, securitised instruments (e.g. floating rate notes and fixed rate bonds)] availed from non-resident lenders with minimum average maturity of 3 years. ECB can be accessed under two routes, viz., Automatic Route and Approval Route. ECBs are being permitted by the Government as a source of finance for Indian Corporates for expansion of existing capacity as well as for fresh investment, to allow institutions to take advantage of the low interest rate regime abroad.
The government, prompted by recent developments and representations received from various organizations has reviewed its current policy regarding the raising and utilization of External Commercial Borrowings ("ECBs"). This appraisal has resulted in the inclusion of Multi State Co-operative Societies ("MSCSs"), allowing those Co-operative Societies engaged in manufacturing activity to raise ECBs under the Approval route administered by RBI. By a recent Circular issued by Foreign Exchange Department, MSCSs engaged in manufacturing activity have been allowed to raise ECBs.
The proposals for ECB by MSCS engaged in manufacturing activity would be considered by the Reserve Bank of India under the Approval Route, provided;
The Co-operative Society is financially solvent,
ii. The Co-operative Society submits its up-to-date audited balance sheet and
iii. The proposal complies with all other parameters of ECB guidelines such as recognized lender, permitted end use, average maturity period, all in cost ceiling etc.
In view of the above, MSCS can raise ECB from any internationally recognised source such as banks, export credit agencies, suppliers of equipment, foreign collaborators, foreign equity-holders, international capital markets etc. Offers from unrecognized sources will not be entertained.
In conclusion with the opening of the Indian market and with availing of better opportunities by various large scale industries, this guideline is a major impetus to the small scale industries towards their expansion / achievement of goals thereby bringing in greater wealth to India.
The content of this article is intended to provide a general guide
to the subject matter. Specialist advice should be sought about your
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).