Reserve Bank of India (RBI) though its recent
circular has simplified the process under the External Commercial
Borrowings (ECB) guidelines and provided more
flexibility to Indian companies for borrowing from its foreign
equity holders (FEH).
ECBs from direct foreign equity holders under the existing ECB
guidelines may be acquired under either the automatic or the
approval routes, as the circumstances may warrant. If the ECB was
to be acquired for general corporate purposes, then it had to be
considered under the approval route. Now, however, companies
belonging to manufacturing, infrastructure, hotels, hospitals and
software sectors may obtain ECBs for general corporate purposes
(including working capital financing) from direct equity holders
under the automatic route. It is pertinent to note that this does
not extend to indirect equity holders.
However, indirect foreign equity holders may extend ECB loans to
companies belonging to the same sectors as mentioned above (i.e.
manufacturing, infrastructure, hotels, hospitals and software
sectors) for end‐uses permitted as per RBI. This was not the
case earlier, where companies had to undertake the approval route
for ECBs from indirect foreign equity holders.
Further, automatic route under the ECB guidelines has even been
enlarged to incorporate procurement of ECBs from group companies
and direct and indirect foreign equity holders for companies in
miscellaneous services. For the purpose of clarity, RBI has
notified companies which will fall within the meaning
'miscellaneous service' which includes 'Companies
engaged in training activities (but not educational institutes),
research and development activities and companies supporting
infrastructure sector. Companies doing trading business, companies
providing logistics services, financial services and consultancy
services are, however, not covered under the
Finally, any request for change of the ECB lender in case of
foreign equity holders (direct or indirect) and group companies
have also now been liberalized to fall within the automatic
This simplification in the ECB guidelines by RBI shall increase
the foreign exchange in the Indian market and shall provide
liquidity to the much required manufacturing, infrastructure,
hotels, hospitals and software companies.
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The MDO Guidelines further state that the intent of the MCA was for the purpose of achieving a standard contractual arrangement that may be entered into across the country for procurement of such services.
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