External Commercial Borrowing Norms Relaxed

RBI has relaxed the existing framework for External Commercial Borrowings (“ECB”) vide circular dated April 27, 2018. The changes brought in the framework are as follows:

  • Rationalization of all-in-cost for ECB under all tracks and Rupee Denominated Bonds:
    A uniform all in cost ceiling of 450 (Four Hundred and Fifty) basis points over the benchmark rate, which in most cases is the 6 (Six)-month USD London Interbank Offered Rate (LIBOR), has been stipulated. The benchmark rate for rupee denominated bonds will be the prevailing yield of government bonds of corresponding maturity.
  • Revisiting ECB Liability to Equity Ratio provisions:
    The ECB Liability to Equity Ratio for ECB raised from direct foreign equity holder under the automatic route has been increased to 7:1 (Seven : One). However, this ratio will not be applicable if total of all ECBs raised by an entity is up to USD 5 million or its equivalent.
  • Expansion of Eligible Borrowers’ list:
    The list of Eligible Borrowers has been expanded to include the following:
    • Housing Finance Companies, regulated by the National Housing Bank, are eligible to avail ECBs under all tracks;
    • Port Trusts constituted under the Major Port Trusts Act, 1963, or Indian Ports Act, 1908, may avail ECBs under all tracks; and
    • Companies engaged in the business of maintenance, repair and overhaul and freight forwarding may raise ECBs denominated in INR only.
  • End-use provisions Rationalized:
    Earlier, a positive end-use list was prescribed for Foreign Currency denominated ECB with Minimum Average Maturity of 3 (Three) to 5 (Five) years (“Track I”), while a negative end-use list was prescribed for Foreign Currency denominated ECB with Minimum Average Maturity of 10 (Ten) years (“Track II”) and Indian Rupee denominated ECB with Minimum Average Maturity of 3 (Three) to 5 (Five) years (“Track III”). Currently, only a negative list for all tracks i.e. for Track I, Track II and Track III has been prescribed, which inter alia includes items like investment in capital markets, equity investment, working capital purposes and general corporate purposes.