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Regulatory Alert: Rationalisation & Liberalisation of External Commercial Borrowings (‘ECB’) Policy

30 April 2018

The Reserve Bank of India (‘RBI’) vide a circular (‘RBI Circular’) dated 27 April 2018 has rationalised and liberalised the ECB guidelines considering the requests received from corporates and other entities for relaxations in the existing ECB framework.

The summarised version of the RBI Circular is as follows:


Track I

Track II

Track III

Revised All-In-Cost (‘AIC’) for ECB and Rupee Denominated Bonds (‘RDBs’)

450 basis points (‘bps’) over the benchmark rate

The benchmark rate will be 6-month USD LIBOR (or applicable benchmark for respective currency)

The benchmark rate will be prevailing yield of the Government of India securities of corresponding maturity

(AIC under Track III would be applicable to RDBs)

Revised ECB liability to equity ratio

Revised ratio would be 7:1 (erstwhile it was 4:1) for ECB raised from direct foreign equity holder under the automatic route

(Ratio will not be applicable if total of all ECBs is up to USD 5 million or equivalent)

Expansion of eligible borrowers’ list

  1. Housing Finance Companies (‘HFCs’), regulated by the National Housing Bank
  2. Port Trusts constituted under the Major Port Trusts Act, 1963 or Indian Ports Act, 1908 (‘Ports’)

Note: HFCs and Ports shall have a board approved risk management policy and shall keep their ECB exposure hedged 100% at all times for ECBs

<< no such condition for Track II>>

  1. Companies engaged in the business of:
  • maintenance, repair and overhaul; and
  • freight forwarding

Only a negative end-use list for all tracks















  1. Investment in real estate or purchase of land
  2. Investment in capital market
  3. Equity investment
  4. Working capital purposes
  5. General corporate purposes
  6. Repayment of Rupee loans
  7. On-lending to entities for the above activities from (1) to (6)
  1. Investment in real estate or purchase of land
  2. Investment in capital market
  3. Equity investment
  4. On-lending to entities for the activities mentioned from (1) to (6) under Track I / III

<<same as Track I>>

Negative end-use mentioned under (1) above will not apply if ECB raised is used for the following:

  1. Affordable housing as defined in Harmonised Master List of Infrastructure sub-sectors; or
  2. Construction and development of Special Economic Zone and industrial parks / integrated townships

Negative end-use from (4) to (6) will not apply if following conditions are satisfied:

  1. ECB is raised from Direct / indirect equity holders / group company AND
  2. ECB is for a minimum average maturity of five years

<<intentionally left blank>>

<<same as Track I>>


BDO comments

The said RBI Circular may have the following impact;

  • The replacement of the end use prescriptions with a negative list gives the corporates a liberty to utilize the ECB proceeds for wide-ranging purposes which was very restrictive earlier;
  • With the revision in ECB liability to equity ratio, eligible borrowers can now raise a comparatively higher amount of ECB from the foreign equity holders under the automatic route. Earlier, the ratio of 7:1 was available for bringing in ECB under the approval route. By relaxing the ECB liability to equity ratio under the automatic route, the companies involved in capital intensive industries shall get much needed respite for borrowing from their foreign equity holders and shall not have to rely on outside debt;
  • To maintain uniformity in the AIC ceiling, a standard spread over the applicable benchmark is prescribed, irrespective of the tenure of ECB