The Reserve Bank of India has come up with a regulation governing all types of lending and borrowing transactions between a resident in India and a non-resident Indian (NRI). The transaction can either be in Indian Rupees or foreign currency. The RBI notified the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 on December 17, 2018, replacing the previous regulations. The existing framework on the External Commercial Borrowing (ECB) was revised on January 16, 2019. The new policy was introduced with immediate effect.
The following are the key features that have been changed as per the new policy-
- Change in structure
- The scope of eligible borrowers
- Rules relating to recognized lenders
- Period of maturity
- Borrowing Limit
The previous framework had provided for a four-tier system:
- Medium-term foreign currency denominated ECB with an average maturity period of 3 to 5 years.
- Long term foreign currency denominated ECB with an average maturity period of 10 years.
- INR denominated ECB with an average maturity period of 3 to 5 years except where the entity is a manufacturing company.
- INR bonds by an Indian entity in a foreign market.
The new policy has revised and merged the system into a two-tier structure depending on the currency. It has been divided into Foreign Currency Denominated ECB and Rupee Denominated ECB. The scope of the list of borrowers has also been widened to include all entities eligible to receive foreign direct investment.
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