The Reserve Bank of India (RBI) vide circular A.P. (DIR Series) Circular No. 17 (hereinafter referred to as the 'Circular') dated January 16 2019, issued new External Commercial Borrowing (ECB) Framework. It has been stated that the revised framework seeks to rationalize the extant framework for the ECB and Rupee Denominated Bonds in light of the experience gained to improve the ease of doing business. The new framework is instrument neutral and would further strengthen the AML/CFT framework.
We bring to you the key changes at a glance, which may interest the medium and small enterprises and the foreign equity holders in particular that the revised ECB Guidelines has introduced:
Particulars | Comments | ||||||||||||
Merging of Tracks | The revised
framework seeks to simplify the existing tracks by merging them
under the following two routes:
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Eligible Borrower | Now, all entities
eligible to receive Foreign Direct Investment (FDI) as per the
extant FDI Policy will qualify as eligible borrower under revised
ECB framework. Thus the list of borrowers eligible to avail ECB has
been expanded. This means that now the entities, such as a limited liability partnership and an entity engaged in trading activity may also be eligible to avail ECB if they are eligible to receive FDI. |
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Recognized
lenders |
The stipulation as
regards a recognized lender is that the lender should be a resident
of FATF or IOSCO-compliant country. It is specifically provided that foreign investor who is individual can be recognized as lender if he qualify as foreign equity holder. |
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Minimum
Average Maturity Period (MAMP) |
The MAMP for all ECB
s will be three years. However, for ECB raised from foreign equity holder and utilized for working capital or general corporate purposes, the MAMP would be five years. Similarly, for ECB up to USD 50 million per financial year raised by the manufacturing sector, which has been given a special dispensation, the MAMP would be one year. |
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End-uses (Negative list) | The negative list,
for which the ECB proceeds cannot be utilized remains the same.
However, as per the erstwhile negative list end use for
"Investment in real
estate or purchase of land..." has been changed
to "Real Estate Activities."
With reference to that the revised ECB framework first time provides a definition of 'real estate activities' means any real estate activity involving personal or leased property for buying, selling and renting of commercial and residential properties or land and also includes activities either on a fee or contract basis assigning real estate agents for intermediating in buying, selling, letting or managing real estate. However, this would not include construction/development of industrial parks/integrated township/SEZ, purchase/long terms leasing of industrial land as part of new project/modernization of expansion of existing units or any other activity under 'infrastructure sector' definition. |
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Change in terms and conditions of ECB | It has been stated that the changes in ECB parameters in consonance with the ECB norms, including reduced repayment by mutual agreement between the lender and borrower, should be reported to within seven days from changes effected. Thus, the revised framework expressly provides for 'reduced repayment,' whereas earlier it was provided for 'reduction in the amount of ECB' which was not expressly clear as to if ECB actually availed can be waived pursuant to mutual agreement between the lender and borrower. | ||||||||||||
Late fees for delayed submissions | The revised ECB
framework seeks to introduce that any borrower who is otherwise in
compliance of ECB guidelines, except for a delay in reporting
drawdown of ECB proceeds before obtaining LRN or Form ECB 2
returns, can regularize the delay by payment of late submission fee
for delay in reporting. The fees will have to be paid via demand draft in favor of RBI, or any mode specified therewith. The computation of late submission fees is as under:
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