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:
  1. Foreign Currency denominated ECB (FC ECB) (Tracks I & II merged); and
  2. Rupee Denominated ECB (INR ECB) (Track III and Rupee Denominated Bonds merged).
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.
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.
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.
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.
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:

Form Period of delay Applicable LSF
Form ECB 2 Up to 30 calendar days from due date of submission  INR 5,000
Form ECB 2/Form ECB Up to three years from due date of submission/date of drawdown  INR 50,000 per year
Form ECB 2/Form ECB Beyond three years from due date of submission/date of drawdown  INR 100,000 per year
SKP's Comments
The principal regulations governing ECB policy was notified on December 17 2018, and in line with that the revised ECB framework has been introduced. As stated, it has really rationalized ECB guidelines. The expansion of eligible borrowers such as limited liability partnership and trading entities in line with the FDI Policy was much-awaited relaxation. Furthermore, the framework also provides greater clarity on certain aspects of ECB Policy. Introduction of late fees for the delay in reporting is a welcome approach as it obviates unwarranted compounding mechanism. The foreign equity holder or companies would be in a position to structure funding their subsidiaries in a more flexible manner. However, it would have been better if the definition of foreign equity holder was aligned to include interest in a limited liability partnership. Nonetheless, the rationalized framework is a welcome move on various counts.

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.