India: ECB Policy Liberalised – A Relief For Infrastructure Companies

The much anticipated revisions to the external commercial borrowings (ECB) regime was announced by the Reserve Bank of India (RBI) on 30 November 2015 along with the Master Direction - External Commercial Borrowings, Trade Credit, Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other than Authorised Dealers dated 1 January 2016 (ECB Framework). The ECB Framework had aimed to provide a refined and liberalized regime for ECBs and had permitted a wider category of lenders to participate in lending to Indian borrowers.

However, the modifications in the ECB Framework proved to be restrictive for companies in the infrastructure sector as they were only permitted to avail long term ECBs with a minimum average maturity of 10 years or rupee denominated ECBs with a lower tenor. Taking into account the numerous requests from market players in the infrastructure sector, the RBI through the notification dated 30 March 2016 (Notification) has further liberalised the ECB Framework.

The key highlights of the liberalised ECB Framework are set out below:

Companies in the infrastructure sector permitted to avail ECBs under Track I

The list of 'eligible borrowers' under Track I has been modified to include companies in the infrastructure sector, Non-Banking Finance Companies – Infrastructure Finance Companies (NBFC – IFCs), NBFCs – Asset Finance Companies (NBFC – AFCs), Holding Companies and Core Investment Companies (CICs). Therefore, these entities are now be permitted to avail ECBs up to US$ 750 million with a minimum average maturity of 5 years, subject to the conditions set out under the ECB Framework. However, the exposure of these entities under Track I would need to be fully hedged.

Definition of infrastructure sector – expanded

The ECB Framework had linked the definition of 'infrastructure sector' to the Harmonised Master List of Infrastructure sub-sectors dated 27 March 2012, as amended from time to time (the Harmonised Master List). Although the definition of 'infrastructure sector' under the earlier ECB regulations remained largely similar to the definition set out under the Harmonised Master List, certain important sectors such as mining, exploration, refining and fertilizers were not included within its ambit. As a result of this, companies which are engaged in the mining, exploration, refinery and fertilizer sectors did not qualify as an 'eligible borrower' under any of the three Tracks set out under the ECB Framework.

The Notification expands the definition of 'infrastructure sector' to include 'exploration, mining and refinery', for the purpose of the ECB regulations. However, fertilizer sector continues to not be considered as 'infrastructure sector'.

Permitted end-uses for the new 'eligible borrowers' under Track I

Although NBFC – IFCs and NBFC AFCs can now avail ECBs under Track I, such ECBs can be utilised only for financing infrastructure. Similarly, holding companies and CICs are permitted to use the ECB proceeds availed under Track I only for on-lending to infrastructure special purpose vehicles. The other entities forming part of the infrastructure sector are permitted to utilise the ECB proceeds for the end-uses permitted under Track I.

Additional conditions imposed on the infrastructure sector

Prior to availing ECBs under Track I, the companies included as 'eligible borrowers' under Track I, pursuant to the Notification are required to have a risk management policy duly approved by their board of directors. Further, the RBI has imposed an obligation on the designated AD Category – I bank to ensure that 100% exposure of these 'eligible borrowers' under Track I are hedged.

In addition to the above, the RBI has also provided the following clarifications to the ECB Framework:

Refinancing of existing ECB – further clarifications

Refinancing of existing ECBs are now permitted under the ECB Framework provided that (i) such refinancing is at a lower all-in-cost, (ii) the borrower is an 'eligible borrower' under the ECB Framework, and (iii) the residual maturity is either maintained or extended. Such refinancing is permitted subject to obtaining a prior 'no-objection' certificate from the designated AD Category – I bank.

Investment in Non Convertible Debentures (NCDs) by Registered Foreign Portfolio Investors (RFPIs)

The Notification further clarifies that the provisions of the ECB Framework do not apply to investment by RFPIs in NCDs. Such investments will continue to be governed by a separate and more liberal regime applicable to RFPIs.

ECBs in the form of Foreign Currency Convertible Bonds (FCCBs) / Foreign Currency Exchangeable Bonds (FCEBs)

The minimum average maturity of FCCBs and FCEBS will be 5 years irrespective of the amount of borrowing and any call / put option for FCCBs may be exercised only after the completion of 5 years. Further, although under the ECB Framework, the RBI had delegated several powers to the designated AD Category – I Bank (such as approval for refinancing, change in lender, change in repayment/ drawdown schedules, prepayment etc.), such liberalization does not extend to ECBs availed in the form of FCCBs or FCEBs.

'Bank loans' to be read as 'loans'

The Notification clarifies that reference to 'bank loans' as a form of ECB would include loans from any recognized lender, including a bank.


The liberalizations and clarifications issued under the Notification address some of the key issues which had arisen on account of the ECB Framework, particularly for companies in the infrastructure sector. This is a welcome move by the RBI as this will open wider avenues for foreign currency borrowings / refinancing for infrastructure companies, which rely on ECBs to meet their capital expenditure requirements, although the compulsory hedging requirements do tend to increase the cost of such borrowing. Further, companies in the telecom sector would be relieved since they would be permitted to avail short term ECBs for the spectrum auctions by the Government of India.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at

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