India: Reserve Bank Of India Revises Framework For External Commercial Borrowings

Last Updated: 7 January 2016
Article by Agram Legal Consultants

The Reserve Bank of India ("RBI") issued a circular on November 30, 2015 to revise the framework for External Commercial Borrowings ("ECB Circular"). The revised ECB framework is to come into effect on the publication of the relevant/ applicable regulations, under the Foreign Exchange Management Act, 1999 ("FEMA"), in the official gazette and will endeavor to implement a more liberal approach regarding ECBs and changes in relation to, inter alia, fewer restriction on end uses, higher all in cost for long term borrowings, liberal regimes in relation to Rupee denominated ECBs where the currency risk is borne by the lender, expansion of list of eligible overseas long term lenders, and further to align the list of infrastructure entities eligible for ECB with the Harmonised Master List of Infrastructure sub-sectors approved by the Government of India vide a notification issued on March 27, 2012.

Entities desirous of raising ECBs under the extant ECB guidelines may raise loans by March 31, 2016, provided that the loan agreement has already been signed before the coming into effect of the revised framework. However, borrowers availing ECB facilities for working capital as airline companies or as consistent foreign exchange earners under the US$ 10,000,000,000 (United States Dollars Ten billion) scheme or for low cost affordable housing projects will be required to sign their loan agreements and obtain their Loan Registration Number from the RBI by March 31, 2016.

Salient features of the ECB Circular are summarised below:

  1. The revised ECB framework is to compromise of 3 (three) main tracks, depending on the ECBs' Minimum Average Maturity period ("Maturity Period") as described below:
    1. "Track I" will comprise of medium term foreign currency denominated ECBs that have a Maturity Period of 3 (three) years for ECB up to US$ 50,000,000 (United States Dollar Fifty million) from the erstwhile limit of US$ 20,000,000 (United States Dollars Twenty million) or that have a Maturity Period of 5 (five) years for ECBs above US$ 50,000,000 (United States Dollar Fifty million);
    2. "Track II" will comprise of long term foreign currency denominated ECBs with Maturity Period of 10 (ten) years, irrespective of the amount; and
    3. "Track III" will comprise of Rupee denominated ECBs with Maturity Period(s) and threshold limit(s) similar to that of Track I.
  2. Eligible borrowers that can avail ECBs under Track I will comprise of, inter alia, companies in the manufacturing and software development sector, shipping and airlines, units in Special Economic Zones ("SEZ") and the Export Import Bank of India;
  3. Eligible borrowers that can avail ECBs under Track II will include all entities under Track I along with companies under the infrastructure sector, holding companies, core investment companies, Real Estate Investment Trusts and Infrastructure Investment Trusts under the Securities and Exchange Board of India's ("SEBI") regulatory framework;
  4. Eligible borrowers that can avail ECBs under Track III will include all entities under Track II along with Non-Banking Financial Companies ("NBFC"), NBFCs - Micro Finance Institutions ("NBFC – MFI"), non- profit companies registered under the Companies Act, 1956 / 2013 ("Companies Act"), societies, trust and cooperative, Non– Government Organisations ("NGO") engaged in micro finance, companies engaged in miscellaneous services, inter alia, relating to research and development, training, companies supporting the infrastructure sector, providing logistics services and developers of SEZs/ National Manufacturing and Investment Zones;
  5. Eligible lenders/ investors that can provide ECBs to entities under Track I will comprise of entities, inter alia, international banks, international capital markets, multilateral financial institutions/ regional financial institutions and Government owned financial institutions, export credit agencies, suppliers of equipment, foreign equity holders, overseas long term investors, pension funds, insurance companies, sovereign wealth funds, financial institutions located in International Financial Services Centres in India and overseas branches/ subsidiaries of Indian banks, subject to certain conditions under the ECB Circular;
  6. Except for overseas branches/ subsidiaries of Indian banks, lenders/ investors under Track I will be permitted to extend ECBs to entities under Track II and III as well;
  7. All-in-Cost ("AIC") for ECBs have been revised and lowered, mechanisms for calculation for which have been specified separately under each Track;
  8. Permitted end-uses under each Track, have been enumerated in detail in the ECB Circular. Moreover, previous restricted end uses of ECB proceeds, for purposes such as real estate activities, investment in capital markets, investing in equity domestically and also for on-lending to other entities for the abovementioned purposes have been removed. Moreover, proceeds can also be utilised for acquisition of land under the Track II and III categories. Further, under Track II, holding companies can also utilise the ECB proceeds for providing loans to their infrastructure Special Purpose Vehicles ("SPV");
  9. NBFCs coming under the Track III criteria will be permitted to utilise their ECB proceeds for providing hypothecated loans to domestic entities, for acquisition of capital goods/ equipment;
  10. Individual sector limits of ECBs that can be raised under the automatic route, for all 3 (three) tracks will be US$ 750,000,000 (United States Dollars Seven hundred fifty million) for companies in the infrastructure and manufacturing sectors, US$ 200,000,000 (United States Dollars Two hundred million) for companies in the software development sector, US$ 100,000,000 (United States Dollars One hundred million) for entities engaged in micro finance activities and US$ 500,000,000 (United States Dollars Five hundred million) for all other remaining entities;
  11. A no-objection certificate will be required from existing domestic lenders, when invoking a charge against hypothecated movable asset(s), in the event that the overseas borrower requires the movable asset(s) be taken out of India;
  12. ECBs will be permitted to be credit enhanced/ guaranteed/ insured by overseas parties(ies), provided that they fulfill the criteria for "recognised lender" under the extant ECB guidelines. Financial intermediaries such as Indian banks, All-India Financial Institutions, NBFCs will not be permitted to invest in FCCBs in any manner;
  13. The parking of ECB proceeds will depend on the utilisation and the denomination for utilisation of the proceeds, the guidelines for which have been provided for in the ECB Circular;
  14. Entities that are under Joint Lender Forum ("JLF")/ Corporate Debt Restructuring ("CDR") may raise ECB with the explicit permission of the JLF/ CDR Empowered Committee.

The draft of the revised framework was put before the public on September 23, 2015 and the framework was accordingly calibrated by taking into account the emerging financing needs of Indian entities and macroeconomic developments. The revised framework is a great step forward and a welcomed change for resident entities desirous of lending from foreign lenders, the revised framework has been made more liberal towards external borrowings by classifying more resident entities as eligible borrowers and recognising additional entities as lenders, expanding end-uses and even removing stringent restrictions that were present in the extant ECB guidelines.

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 Mondaq.com.

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

Authors
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
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
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

Mondaq.com (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 www.mondaq.com

To Use Mondaq.com 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.

Disclaimer

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.

General

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