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Alerts:

Regulatory Alert: External Commercial Borrowings (ECB) Policy – Rationalization of End-use Provisions

01 August 2019

At present, External Commercial Borrowings (“ECB”) regulations[1] mandates that the ECB proceeds can be used for working capital purposes, general corporate purposes and repayment of rupee loans only if they are lent by a foreign equity holder (as prescribed in the said regulations).

In order to further relax the ECB regulations, the Reserve Bank of India (“RBI”), vide its circular dated 30 July, 2019[2], has liberalised the restrictions on end-use of funds raised via ECBs and also widened the scope of the ‘eligible lenders’ who can provide ECBs to Indian borrowers.

The relaxations granted in ECBs framework are summarised below:

1. The new norms have permitted end–use pegged to Minimum Average Maturity Period. The details are as follows:  

Permitted End-use

Minimum Average Maturity Period (“MAMP”)

  • Working capital and general corporate purposes
  • Borrowing by NBFC for on-lending for said purposes

10 Years

  • Repayment of rupee loans (availed domestically) for purpose other than capital expenditure
  • Borrowing by NBFC for on-lending for said purposes

10 Years

  • Repayment of rupee loans (availed domestically) for capital expenditure
  • Borrowing by NBFC for on-lending for said purposes

7 Years

 

 

 

2. The additional relaxation granted for manufacturing and infrastructure sector are as under:

  • These sectors can now raise ECBs for repayment of rupee loans (availed domestically) for capital expenditure even if classified as Special Mention Account-SMA-2 or Non-Performing Asset (NPA).
  • This facility is only available as one-time settlement with lenders.
  • The lender banks are permitted to transfer such loans (via sale or assignment) provided the resultant ECB complies with other relevant norms of the ECBs framework such as all in cost, MAMP, etc.

It is important to note that foreign branches/ overseas subsidiaries of Indian banks are carved out from being part of this liberalisation scheme. Accordingly, such branches / subsidiaries cannot lend ECBs for the above mentioned end–use.

BDO Comments

The above liberalisation of the ECBs framework is a welcome move by Reserve Bank of India. The intention seems to be increasing the liquidity for corporates and NBFCs in India by opening up international debt market. Another major change introduced under the circular is a permissibility of Indian entities which are classified as SMA-2 and NPA and were not allowed to access ECB route earlier. The liberalisation providing them an opportunity to refinance the debt under the one-time settlement scheme can provide an additional avenue for revising profitable and sustainable assets in India.