India: A New Era Of Debt-Raising! – RBI Announces Liberalized Framework For Rupee Denominated Overseas Borrowing

Last Updated: 26 October 2015
Article by Shreyas Bhushan, Ruchir Sinha and Vaibhav Parikh
  • Revised ECB framework a significant alternative to other forms of overseas borrowing.
  • Larger pool of borrowers and investors permitted to participate in issuance of Rupee Bonds.
  • All-in-cost is flexible, commensurate with prevailing market conditions.
  • No end-use restrictions, except for a minimal negative list.

In a move that encourages India Inc. to consider overseas borrowing as an important source of debt funding, the Reserve Bank of India ("RBI") has liberalized the External Commercial Borrowings ("ECB") framework vide its circular dated September 29, 2015 ("Revised Policy"),1 permitting Indian corporates to avail overseas rupee denominated debt ("Rupee Bonds") with extremely minimal restrictions. The key changes in the Revised Policy include a widened pool of investors and borrowers, a market determined all-in-cost ceiling instead of a fixed one, and very limited end-use restrictions. Considering the advantages of the Revised Policy (which is explained below), corporates in certain sectors may view issuance of Rupee Bonds as a significant substitute for raising overseas debt through other conventional means, i.e., issuance of listed non-convertible debentures ("Listed NCDs") to foreign portfolio investors and foreign currency denominated borrowing as per the existing ECB policy ("Existing Policy").


Under the Existing Policy, Indian body corporates are permitted to avail overseas foreign currency denominated debt under the automatic route upto certain limits. However, the extant policy prescribes stringent stipulations in order to obtain the afore-said overseas borrowing, including the following: (i) only companies (excluding financial intermediaries such as NBFCs), micro-finance institutions and non-governmental organization are permitted to obtain overseas borrowing; (ii) apart from international banks, multilateral financial institutions, foreign equity holders holding minimum of 25% equity shares and supplier of equipment, other entities are not permitted to lend under the Existing Policy; (iii) the borrowed funds carry strict end-use restrictions, and such funds generally cannot be utilized towards working capital and general corporate purposes; and (iv) a maximum all-in-cost ceiling is prescribed,2 which generally restricts the total cost of borrowing to less than 8 – 10%. In 2014, RBI for the first time permitted a multilateral financial institution to issue rupee denominated dollar settled global bonds in 2014 and based on the demand for such rupee bonds, the RBI has decided to liberalize the legislative framework governing issuance of rupee bonds.

Key Changes and Analysis

The key changes introduced by the Revised Policy and the comparative advantages of the Revised Policy vis-à-vis the Existing Policy/ Listed NCDs (wherever applicable) has been highlighted below:

  • Broader definition of 'eligible borrower': The Revised Policy permits (under the automatic route) all body corporates, real estate investment trusts and infrastructure investment trusts to opt for issuance of Rupee Bonds, as against the limited entities permitted under the Existing Policy. Hence, this should provide Indian corporates a significant additional option of debt funding. Further, entities such as LLPs that cannot raise debt through issuance of Listed NCDs can now opt for issuance of Rupee Bonds. However, 'trusts' may not be able to take benefit of the Revised Policy since they cannot be categorized as 'body corporates'; as a result, entities such as Alternative Investment Funds set up as trusts will not be able to issue Rupee Bonds.

  • Larger group of 'investors': Unlike the Existing Policy, the Revised Policy permits all kinds of investors who enter from an FATF compliant jurisdiction to invest in Rupee Bonds.3 This expanded definition of 'investors' should assist Indian corporates in accessing a considerably larger pool of debt capital. This change also allows for a wider range of foreign investors to invest in Rupee Bonds without being regulated/ registered by an Indian regulator (eg: Mandatory FPI registration) and hence, non-FPI investors who would not be permitted to invest in Listed NCDs should find Rupee Bonds as a significant alternative. Further, innovative pooling structures should also be encouraged in light of there being no mandatory registration requirement for investors.

  • No fixed 'all-in-cost' ceiling: In sharp contrast to the Existing Policy, the Revised Policy does not place any fixed cost restriction; instead, it mentions that the 'all-in-cost' ceiling should be commensurate with the prevailing market conditions. At a principle level, this change seems to indicate that RBI does not intend to exercise strict control on the amount coupon paid to overseas investors so long as market conditions justify such payment. However, since the term 'prevailing market conditions' does not have a fixed standard or range, this significant change seems slightly ambiguous. Admittedly, interest rates for domestic lending in India are determined based on numerous factors, including the nature of lending entities, business of the borrower entities etc. (for eg: typically, NBFCs lend at substantially higher rates when compared to commercial banks). Further, since there is no guidance on how to ascertain 'prevailing market conditions', whether the interest rates offered by a willing borrower can be considered as 'prevailing market condition' or should there by a market study conducted is unclear. Nonetheless, the spirit of this change seems to be positive and with a little more clarity, the intended objective should stand achieved.

  • Limited end-use restrictions: In addition to the above, the Revised Policy does not carry forward the end-use restrictions placed under the Existing Policy. Instead, it permits eligible borrowers to utilize funds raised by issuance of Rupee Bonds for any purpose, except a small negative list of activities. The negative list includes the following:

    • Purchase of land, and undertaking real estate activities (other than for development of integrated township/ affordable housing projects). Since the term 'integrated township' is not defined, it should probably have the same meaning as under the Existing Policy4 which requires a minimum of 100 acres to be developed; and

    • Investing in capital markets or for equity investment domestically. In our view, this provision does not seem to place a blanket restriction on investing in equity shares. Instead, the objective is to prohibit raising money through Rupee Bonds only for the purpose of investing in capital markets/ equity shares domestically. However, the government should clarify the scope of this provision.

    Nevertheless, this change comes as a major departure from the approach adopted by the government in the Existing Policy, which prescribes strict end-use restrictions in order to track the utilization of overseas debt. Further, the minimal end-use restrictions should also provide the much required flexibility for Indian borrowers to deploy funds raised through Rupee Bonds for working capital/ general corporate purposes.

  • Nature of Instrument, Maturity and Free Transferability: The Revised Policy permits issuance of vanilla bonds, which may be either be privately placed or listed on stock exchanges. The likely objective is to facilitate increased trading of the rupee denominated debt instruments. Further, unlike the considerably onerous compliances (such as continuous disclosures, credit rating etc.) to be followed by a company issuing Listed NCDs, compliances to be undertaken by a company issuing privately placed Rupee Bonds should be very limited.

    Further, the Revised Policy states that the Rupee Bonds must have a 'minimum maturity' of 5 years, and any call or put option can be given effect only after 5 years. Interestingly, the term 'minimum maturity' is adopted in the Revised Policy, instead of 'minimum average maturity' which is used in the Existing Policy. The aforesaid wording seems to indicate that amortization/ part repayment of Rupee Bonds within 5 years of issuance would not be possible. As regards transferability of Rupee Bonds, it is also important to note that Rupee Bonds are freely transferable at any stage to any non-resident entity. This may again be a comparative advantage of Rupee Bonds as against Listed NCDs, since Listed NCDs which do not have a residual maturity of 3 years cannot be transferred to a non-resident entity.

  • Hedging permitted: Overseas investors are also permitted to hedge their rupee exposure arising as a result of their lending. This should be an added advantage for investors to enter through the Rupee Bonds route with limited currency fluctuation risk.

  • Other provisions: In addition to the above, all other provisions of the Existing Policy relating to security creation, parking of proceeds, conversion into equity etc. will be applicable to the Revised Policy as well. However, the requirement to undertake a currency swap has been done away with.

Conclusion and Recommendations

The Revised Policy certainly seems to be a step in the right direction, which should usher a new era of raising debt by Indian corporates. In fact, in light of the comparative advantages between Rupee Bonds vis-à-vis Listed NCDs/ Existing Policy, the Revised Policy seems to thrown open a completely new avenue of debt funding for Indian corporates. The Revised Policy also facilitates a new pool of borrowers, i.e., start-ups, to raise overseas debt in a hassle free manner. However, in order for the Revised Policy to achieve its intended objective, a few aspects (mentioned below) either require clarity or need to be realigned with the objective:

  1. First, while the end-use restrictions have been substantially relaxed, it is not clear as to why borrowers from sectors such as real estate are not permitted to issue Rupee Bonds, especially when such borrowers are permitted to raise debt through issuance of Listed NCDs under the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 ("TISPRO Regulations"). Further, as mentioned above, there should be clarity on the restriction from investing in equity shares domestically. Net-net, the government should ensure that end-use restrictions for Rupee Bonds are very minimal and akin to those restrictions prescribed under the TISPRO Regulations.
  2. Second, as mentioned above, the Revised Policy provides for a 'minimum maturity' period 5 years. As a result, the flexibility to partly redeem/ repay the Rupee Bonds within 5 years of issuance has been taken away. Hence, it may be appropriate to clarify the wording of the Revised Policy to state that the term 'minimum maturity' should include 'minimum average maturity' in case of amortizing bonds. Further, the Revised Policy also prohibits exercise of any call/ put options during the 5 maturity year period. While such restriction is understandable in case of put options, the borrower should be allowed to have a 'call' option on such Rupee Bonds allowing it to repay/ redeem the Rupee Bonds prior to completion of maturity in order to mitigate excessive interest outflow.
  3. Third, in order to afford more clarity, it would be helpful if a process is set-out for assisting the borrowers/ investors to ascertain whether a proposed coupon payment is in line with 'prevailing market conditions' or not.
  4. Lastly, since there is no concessional tax withholding rate for Rupee Bonds in general, withholding at the rate of 40% or such other lower rate as per the tax treaty should be applicable. Hence, investors may have to enter from certain specific jurisdictions (Eg: Singapore) in order to obtain the benefit of lower tax withholding which the relevant tax treaty may provide. However, in order to incentivize investment in Rupee Bonds, it would be meaningful if the government introduces a lower withholding rate for payments on Rupee Bonds.


1 Please refer

2 The all-in-cost ceiling cannot exceed 5% more than the six-month LIBOR rate.

3 Please visit the following website to identify the list of FATF compliant countries -

4 Please refer

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Shreyas Bhushan
Ruchir Sinha
Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
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).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions