MAJOR FUNCTIONS
External Commercial Borrowings are being permitted by the Government for providing an additional source of funds to Indian corporates and PSUs for financing expansion of existing capacity and as well as for fresh investment, to augment the resources available domestically. External Commercial Borrowings are approved within an overall annual ceiling, consistent with prudent debt management, keeping in view the balance of payments position and level of foreign exchange reserves. Applicants will be free to raise ECB from any internationally recognized source such as banks, export credit agencies, suppliers of equipment, foreign collaborators, foreign equity holders, international capital markets etc. Offers from unrecognized sources will not be entertained and this would also be applicable for ECBs below USD 5 Million
II. Salient features of ECB guidelines.
The important aspect of ECB policy is to provide flexibility in borrowings by Indian corporates, at the same time maintaining prudent limits for total external borrowings. The guiding principles for ECB Policy are to keep maturities long, costs low, and encourage infrastructure and export sector financing which are crucial for overall growth of the economy. Some of the salient features of ECB guidelines, are as under:1. Average maturities for ECBs : ECB should have the following minimum average maturities :a. USD 5 million scheme - 3 years simple maturity ; b. ECBs up to USD 20 million - 3 years average maturity ; c. ECB for 100% EOUs - 3 years average maturity for any amount; and d. ECB above USD 20 million - 5 years average maturity for all other sectors 2. Exporters / Foreign Exchange Earners Scheme Corporates who have foreign exchange earnings are permitting to raise up to three times the average amount of annual exports during the previous three years subject to a maximum of USD 200 million without end-use restrictions, i.e. for general corporate objectives excluding investment in stock markets or in real estate. 3. Long Term Borrowings i. External Commercial Borrowings with an average maturity of 8 years and above will be outside the ECB ceiling. However, corporates would be required to obtain prior approval of MOF / RBI for raising funds under this scheme. The extent of debt under this window will be reviewed by the Government periodically. ii. Funds raised under this window will not be subject to end-use restrictions other than those relating to investment in real estate and stock market upto the extent of :-
a. USD 200 mio, if the maturity is 8 years and above but less than 16 years ; b. USD 400 mio, if the maturity is 16 years and above.
Finmin.com
broad features of ECB guidelines may be summarised as under :1) Average maturities for ECBs :ECB should have the following minimum average maturities:a) USD 5 million scheme - 3 years simple maturity ; b) ECBs upto USD 20 million - 3 years average maturity; c) ECB for 100% EOUs - 3 years average maturity for any amount; and d) ECB above USD 20 million - 5 years average maturity for all other sectors 2) End-use Requirements :i) External Commercial Borrowings can be utilised for import of capital goods and services (on FOB or CIF basis) and for project-related rupee expenditure in all sectors subject to the following conditions :a) ECB raised for project-related rupee expenditure must be brought into the country immediately. b) ECB raised for import of capital goods and services should be utilised at the earliest and corporates should strictly comply with RBIs extant guidelines on parking ECBs outside till actual imports. RBI would be monitoring ECB proceeds parked outside. c) ECB raised is not permitted for investment in stock market or in real estate. All other conditions with regard to the ECB eligibility for project finance, i.e., exposure limit etc. will remain unchanged. ii) Corporate borrowers will be permitted to raise ECB to acquire ships / vessels from Indian shipyard. iii) Under no circumstances, ECB proceeds will be utilised for a) Investment in stock markets ; and b) Speculation in real estate; 3) Exporters / Foreign Exchange Earners Scheme Corporates who have foreign exchange earnings are permitting to raise up to three times the average amount of annual exports during the previous three years subject to a maximum of USD 200 million without end-use restrictions, i.e. for general corporate objectives excluding investment in stock markets or in real estate. The maximum entitlement in any one year is a cumulative limit and debt outstanding under earlier approvals (erstwhile USD 15 mio exporter schemes and thereafter) will be netted out to determine annual eligibility. 4) Long Term Borrowings i) External Commercial Borrowings with an average maturity of 8 years and above will be outside the ECB ceiling. However, corporates would be required to obtain prior approval of MOF / RBI for raising funds under this scheme. The extent of debt under this window will be reviewed by the Government periodically. ii) Funds raised under this window will not be subject to end-use restrictions other than those relating to investment in real estate and stock market upto the extent of :a) USD 200 mio, if the maturity is 8 years and above but less than 16 years ; b) USD 400 mio, if the maturity is 16 years and above. 5) USD 5 mio scheme All corporates and institutions are permitted to raise ECB upto USD 5 mio equivalent at a minimum simple maturity of 3 years. Borrowers may utilise the proceeds under this window for general corporate objectives without any end-use restrictions excluding investment in stock markets or in real estate.
As a measure of simplification and deregulation for the benefits of the corporates and institutions, Government have delegated the sanctioning power upto USD 3 million to RBI under this scheme w.e.f. December 15, 1996 and the limit under this scheme has been further enhanced upto USD 5 million w.e.f. August 25, 1998.
