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Regulatory Alert: RBI delivers a liberalized External Commercial Borrowings (‘ECB’) Framework to India Inc.

18 January 2019

The Reserve Bank of India (‘RBI’) vide a circular (‘RBI Circular’) dated January 16, 2019 has rationalised the extant framework for External Commercial Borrowing (‘ECB’) and Rupee Denominated Bonds (‘RDBs’) with an objective to improve the ease of doing business.

BDO comments

The said RBI Circular may have the following impact:

  • The broadening of ambit of eligible borrowers to “all entities in which FDI is permitted” now opens the door to Indian entities which are operating as LLPs. FDI was permitted in LLP however, the ECB route remained closed till now. This move will definitely make the LLPs more acceptable for doing business in India.
  • ECBs can now cater to the requirement of Trading and Services sectors in India. With the growing impetus on service sector, this regulatory relaxation can go a long way in boosting.
  • An important area which needs clarification/confirmation is whether ECB is permitted for sectors where FDI is permitted under approval route or where there are sectoral caps
  • Indian entities having Trade credits which cross the maturity of 3 years will now need to assess the exposure, if any, since such Trade credits will now be considered as ECBs.

1Financial Action Task Force
2International Organisation of Securities Commissions
3Minimum Average Maturity Period
4Rupee Denominated Bonds