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Regulatory Alert – Amendment in ECB provisions due to LIBOR transition

09 December 2021

The Foreign Exchange Management (Borrowings and Lending) Regulations (Notification No. G.S.R. 1213(E) [NO. FEMA 3(R)/2018-RB], dated 17 December 2018 provides the following:

  • The benchmark rate for Foreign Currency (FCY) External Commercial Borrowings (ECB) / Trade Credit (TC) is 6-months LIBOR rate or any other 6-month interbank interest rate applicable to the currency of borrowing
  • All-in-cost ceiling for ECB is 450 basis points over the benchmark rate and that of TC is 250 basis points over the benchmark rate

Revised Provisions

In view of the imminent discontinuance of LIBOR as a benchmark rate, the Reserve Bank of India (RBI), as per the press release 'Governor’s Statement on Developmental and Regulatory Policies' dated 8 December 2021 has decided, to make the following changes to the benchmark rates and All-In-Cost (AIC) ceiling for FCY ECB/TC:

  • Benchmark rate of FCY ECB/TC – It shall now refer to any widely accepted interbank rate or Alternative Reference Rate (ARR) of 6-month tenor, applicable to the currency of borrowing
  • AIC ceiling for new FCY ECB/TC - To take into account differences in credit risk and term premia between LIBOR and the ARRs, the all-in-cost ceiling for new FCY ECB and TC has been increased by 50 bps over the benchmark rates. Accordingly, the AIC ceiling for new FCY ECBs would be benchmark rate + 500 basis points and for all new FCY TCs would be the relevant benchmark rate + 300 basis points
  • One Time Adjustment in AIC ceiling for existing FCY ECB/TC - To enable a smooth transition of existing FCY ECBs/ TCs linked to LIBOR whose benchmarks are changed to ARRs, the all-in cost ceiling for such ECBs/ TCs has been revised upwards by 100 basis points to 550 bps and 350 bps, respectively, over the ARR

We have summarised the above in a tabular format below for ease of reference:



Old Rate

Revised Rate


Benchmark Rate plus 450 bps

Benchmark Rate plus 500 bps

Existing FCY ECB

Benchmark Rate plus 550 bps


Benchmark Rate plus 250 bps

Benchmark Rate plus 300 bps

Existing FCY TC

Benchmark Rate plus 350 bps


BDO Comments

The readers to note that the above change is only in respect of FCY ECB/TC and not for ECB/TC availed in Indian Rupees.

While the RBI had notified all banks on 8 July 2021 asking them to transition to ARRs since the Financial Conduct Authority (FCA), UK, had on 5 March 2021 announced that LIBOR will either cease to be provided by any administrator or no longer be a representative rate, the current notification brings in much awaited certainty to the borrowers/lenders of foreign currency ECBs/TCs.