RBI revises the External Commercial Borrowings Policy to improve the Ease of Doing Business

Jan 17, 2019 | by Avantis RegTech Legal Research Team

The Reserve Bank of India (RBI) on January 16, 2019 has revised the External Commercial Borrowings (ECB) Policy.

RBI has invited reference to paragraph 7 of the Statement on Developmental and Regulatory Policies of the Fifth Bi-monthly Monetary Policy Statement for 2018-19 released on December 5, 2018 and to paragraphs 2 and 3 of Master Direction No.5 dated January 1, 2016 on “External Commercial Borrowings, Trade Credit, Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other than Authorised Dealers”, as amended from time to time.

In order to rationalise the extant framework for ECB and Rupee Denominated Bonds in light of the experience gained to improve the ease of doing business, RBI has issued a new framework and it has been instrument neutral and would further strengthen the AML/CFT framework. The revised ECB guidelines are set out in the Annex (page 3) to the circular.

The salient features of the new framework are as under:

         i.            Merging of Tracks: Merging of Tracks I and II as “Foreign Currency denominated ECB” and merging of Track III and Rupee Denominated Bonds framework as “Rupee Denominated ECB”.

       ii.            Eligible Borrowers: This has been expanded to include all entities eligible to receive FDI. Additionally, Port Trusts, Units in SEZ, SIDBI, EXIM Bank, registered entities engaged in micro-finance activities, viz., registered not for profit companies, registered societies/trusts/cooperatives and non-government organisations can also borrow under this framework.

     iii.            Recognised Lender: The lender should be resident of Financial Action Task Force (FATF) or International Organization of Securities Commissions (IOSCO) compliant country. Multilateral and Regional Financial Institutions, Individuals and Foreign branches / subsidiaries of Indian banks can also be lenders.

     iv.            Minimum Average Maturity Period (MAMP): MAMP will be 3 years for all ECBs. However, for ECB raised from foreign equity holder and utilised for specific purposes, the MAMP would be 5 years. Similarly, for ECB up to USD 50 million per financial year raised by manufacturing sector, which has been given a special dispensation, the MAMP would be 1 year.

       v.            Late Submission Fee (LSF) for delay in Reporting: Any borrower, who has been otherwise in compliance of ECB guidelines, except for delay in reporting drawdown of ECB proceeds before obtaining LRN or Form ECB 2 returns, can regularize the delay by payment of LSF as per the laid down procedure.

ECB up to USD 750 million or equivalent per financial year, which otherwise are in compliance with the parameters and other terms and conditions set out in the new ECB framework, will be permitted under the automatic route not requiring prior approval of the Reserve Bank. The designated AD Category I bank while considering the ECB proposal has been expected to ensure compliance with applicable ECB guidelines by their constituents. Any contravention of the applicable provisions will invite penal action or adjudication under the Foreign Exchange Management Act, 1999.

Lending and borrowing under the ECB framework by Indian banks and their branches/subsidiaries outside India will be subject to prudential guidelines issued by the Department of Banking Regulation of the Reserve Bank. Further, other entities raising ECB are required to follow the guidelines issued, if any, by the concerned sectoral or prudential regulator.

The amended policy will come into force with immediate effect. The Principal Regulations governing the ECB policy has been rationalized through the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 and notified through Notification No. FEMA.3R/2018-RB dated December 17, 2018, vide G.S.R. 1213(E) dated December 17, 2018.

The aforesaid Master Direction No. 5 dated January 01, 2016 has been being revised to reflect the above changes.

[A.P. (DIR Series) Circular No. 17(RBI/2018-19/109)]

URL: https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NT1096DD257F73C9F4BD280F9C2A2CAD084F1.PDF


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