The Reserve Bank of India (RBI) on receiving suggestions from the corporates and other entities on relaxing the existing External Commercial Borrowings (ECB) framework has decided, in consultation with the Government of India, to further rationalize and liberalize the ECB guidelines as under:-
(i) Rationalisation of all-in-cost for ECB under all tracks and Rupee denominated bonds (RDBs): With a view to harmonising the extant provisions of Foreign Currency and Rupee ECBs and RDBs, it has been decided to stipulate a uniform all-in-cost ceiling of 450 basis points over the benchmark rate. The benchmark rate will be 6 months USD LIBOR (or applicable benchmark for respective currency) for Track I and Track II, while it will be prevailing yield of the Government of India securities of corresponding maturity for Track III (Rupee ECBs) and RDBs.
(ii) Revisiting ECB Liability to Equity Ratio provisions: It has been decided to increase the ECB Liability to Equity Ratio for ECB raised from direct foreign equity holder under the automatic route to 7:1. This ratio will not be applicable if total of all ECBs raised by an entity is up to USD 5 million or equivalent.
(iii)Expansion of Eligible Borrowers’ list for the purpose of ECB: It has been decided to permit:
a) Housing Finance Companies, regulated by the National Housing Bank, as eligible borrowers to avail of ECBs under all tracks. Such entities shall have a board approved risk management policy and shall keep their ECB exposure hedged 100 per cent at all times for ECBs raised under Track I.
b) Port Trusts constituted under the Major Port Trusts Act, 1963 or Indian Ports Act, 1908 to avail of ECBs under all tracks. Such entities shall have a board approved risk management policy and shall keep their ECB exposure hedged 100 per cent at all times for ECBs raised under Track I.
c) Companies engaged in the business of Maintenance, Repair and Overhaul and freight forwarding to raise ECBs denominated in INR only.
(iv) Rationalisation of end-use provisions for ECBs: Currently, a positive end-use list is prescribed for Track I and specified category of borrowers, while negative end-use list is prescribed for Track II and III. It has now been decided to have only a negative list for all tracks. The negative list for all Tracks would include the following:
a) Investment in real estate or purchase of land except when used for affordable housing as defined in Harmonised Master List of Infrastructure Sub-sectors notified by Government of India, construction and development of SEZ and industrial parks/integrated townships.
b) Investment in capital market.
c) Equity investment.
Additionally for Tracks I and III, the following negative end users will also apply except when raised from Direct and Indirect equity holders or from a Group company, and provided the loan is for a minimum average maturity of five years:
d) Working capital purposes.
e) General corporate purposes.
f) Repayment of Rupee loans.
[RBI/2017-18/169 A.P. (DIR Series) Circular No.25]