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ECB Policy

- An overview

New Delhi
November 07, 2015
ECB Policy- An Overview

External Commercial Borrowings Commercial Loans, buyer / suppliers credit, securitized instruments
(Bonds, Preference shares etc.) with a minimum average maturity of 3 years.

External Commercial
Commercial Borrowing
Borrowing (ECB)

Automatic Route
Route Approval Route

U$ 750 M-Maximum
Approval route applicable -
U$ 200 M- Hotel, Hospital, S/W
when not covered in Automatic
and Miscellaneous Service;
U$ 10 M- NGO in MF MFI;
Specified NBFC and SIDBI as
per conditions

Minimum average maturity

3 or 5 years depending on the
quantum of ECB

Short term debt not encouraged

ECB Policy- At a glance

Eligible Lender Eligible Borrowers End Use

International Banks NGOs in Micro Finance Real/ Industrial sector (SME)
International Capital Markets SEZ Units (except financial Import of capital goods,
Multilateral Financial Institutions intermediaries, individuals, New Projects, Expansion/
Export credit agencies Trusts) modernization of existing units
Suppliers of equipment NBFC-IFC, NBFC-AFC ODI in JV/ WoS abroad
Foreign collaborators MFI, NGO Payment of Interest During
Foreign Equity Holders (min. Companies in Miscellaneous Construction (IDC)
25%) Services i.e. Training Activities, First stage acquisition of shares in
For ECB > USD 5M ECB R&D; and Infra Support; (except the disinvestment process and
Liability- Equity 4:1 Edu Inst., Trading business, also in the mandatory second
Indirect Equity Holder- Only if Logistic Services, Financial stage offer under GOIs
indirect Holding in IC is 51% Services, and Consultancy disinvestment program
Group Co.- Only if Lender & Services) only from its Payment for obtaining License/
Borrower are Subs of same Direct/Indirect Equity permit for 3G spectrum.
Parent Holder/Group Cos For lending to self help groups or
SIDBI (for on lending to MSME for micro credit by NGOs
Maturity & interest Sector) Repayment of rupee loans by
Minimum avg. maturity Other specified companies in infrastructure sector
manufacturing and hotel sector
period Prohibition (with project cost of NR 250 or
USD 20 M 3 years more)
>USD 20 upto 750 M 5 On lending, Investment in capital General corporate purpose from
market or acquiring a company in foreign direct equity holder
All in Cost Ceiling Real Estate
3-5 years - LIBOR + 350 b.p. General corporate purposes 3
>5 years - LIBOR + 500 b.p. Repayment of existing INR Loan
Other permitted end uses

Import of capital goods; New projects;

Modernization/expansion of existing projects in real sector (industrial sector including SME
and infrastructure sector);
Hotel Sector (fixed capital investment of Rs. 200 Crore)
Convention Centers (fixed capital investment of Rs. 300 Crore)
Common infrastructure for Industrial Parks, SEZ, Tourism Facilities;
Capital investment for fertilizers;
Post harvest infrastructure for agricultural and horticultural produce including cold storage;
Soil testing laboratories; Cold chain for farm level pre-cooling, preservation, storage or
agricultural and allied produce, marine produce and meat;
ODI in JV/WOS abroad;
Acquisition of shares in disinvestment process of PSU shares;
IDC for Indian Infrastructure sector;
Capital expenditure in maintenance and operations of toll system;
Refinancing of Bridge finance availed for import of capital goods in infrastructure sector;
Import of services, technical know-how, payment of license fee etc.;
General corporate purposes from FDEH in manufacturing, infrastructure, hotels, hospitals
and IT sector (minimum average maturity 7 years);
Payment of spectrum allocation;

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ECB Policy-
Issuance of guarantee, standby letter of credit, letter of undertaking or letter of comfort by
banks, Financial Institutions and Non-Banking Financial Companies (NBFCs) from India
relating to ECB is not permitted.
Pledge of shares by promoters, domestic associate companies of the borrower
Corporate Guarantee, Personal Guarantee ,
Creation of Charge over immoveable assets and financial securities is
Possible only after obtaining no objection from AD bank.
Incase of enforcement of charge property will be transferred only to person resident in India

Now Authorised Dealer can permit:

Change in Name; Change in Lender; Change in End Use, Change in All-in-Cost

Transfer of ECB, Currency Reschedulement, Reduction in amount of ECB
Cancellation of LRN
Conversion of ECB into Equity

Activities to be under Automatic Route / FIPB approval obtained
Sectoral Cap not breached
Pricing: Listed as per SEBI; Unlisted: At a Fair Value arrived by CA/MB based on IAP on ALP
on the date of conversion
Conversion Rate: Maximum at exchange rate prevailing on the date of the agreement
between the parties.
Reporting structure
Full conversion of outstanding ECB into equity Form FC-GPR to AD & Form ECB-2 to DSIM
within 7 working days from the close of the month
Partial conversion of outstanding ECB into equity Form FC-GPR for converted portion &
Form ECB-2 to DSIM mentioning converted and unconverted portion

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ECB Policy- Procedures & Compliance

Execution of Loan Agreement(filing is not


Filing of Form 83 duly certified by CA/CS to


AD to process the request and send to RBI

for LRN

Drawn should take place post allotment of


Filing of Monthly Return in ECB 2 by 7th of

next month

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Practical Aspects

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Practical Aspects

Treatment of certain securities - Non convertible, optionally convertible or partially convertible

preference shares.

Concept of Deemed ECB.

RBI has not granted the LRN even after 2 months Can I drawdown the first tranche.

Can I convert ECB into equity including Interest what about interest on Interest.

ECB for Trading sector.

Does software sector include IT/ITeS non STPI units.

Can I use MIBOR for INR denominated ECBs?

In case of confusion on whether a sector qualifies under automatic route, can I still follow
automatic route.

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Compounding of Contraventions
Compounding ofCompounding
of Contraventions


Settle an offence committed by the contravener through imposition of a

monetary penalty without going in for litigation after the contravener
acknowledges having committed the contravention..


To provide comfort by minimizing transaction costs, while taking severe

view of willful, malafide and fraudulent transactions.

But it is not equal to withdrawal of a charge or a complaint but an

agreement not to pursue the legal battle and spare the accused
from further consequences.
Filling the Application
Application Form
Nature of the contravention
Under which provisions of FEMA the transaction would be handled
How and which of the FEMA provisions were contravened while undertaking
the transaction
Transaction:- Parties involved, Date of the transaction and Amount involved
DD in favour of RESERVE BANK OF INDIA Payable at RO/MUMBAI

Jurisdiction of RBI Offices

Regional Offices Central Offices

- Delay in AR,FC-GPR
New Delhi
- Non Allotment/Refund in 180 days - Acquisition of IMP in/outside India
- Violation of Pricing Guidelines - LO, BO and PO
- Issue of Ineligible Instruments - Deposits
- Issue of securities without
RBI/FIPB approval
- Delay in Filing of FC-TRS-NR/R- - ECB
- Recording of Transfer by Company - Export, Import and Others
without FC-TRS
Compounding Salient Features

No suo-motto investigation
Time Bound completion (Within 180 days)
No further proceedings for contravention so compounded
Payment of sum of contravention (within 15 days)
Once the order is passed, no contravener seek to withdraw the order or to hold it
as void or request a review of the order
No appeal against the Order
Non payment shall be deemed as no application is made
No compounding before expiry of 3 years of previous order for similar
No Compounding of cases where approval of any statutory authority/Govt. etc.
was required unless such approvals has been sought
Ascertainment of Nature of Contravention by RBI
Depends on whether the contravention is

Technical/ Minor in nature and needs only Cautionary Advice.

Serious in nature and warrant Compounding;
Prima facie, involves Money-Laundering, National and Security concerns involving serious
infringement of the regulatory framework;

However, RBI reserves the right to classify the contraventions and no body else has any right
to classify any contravention as technical suo moto.

Decision of Sum of contravention by RBI depends on

Amount of Gain of unfair advantage made from contravention;
Amount of Loss to any agency/authority/exchequer from contravention;
Economic benefits accruing to the contravener from delayed compliance or compliance
Repetitive nature of the contravention, Track Record, History of non-compliance of the
Contraveners conduct in undertaking the transaction, Disclosure of full facts in the
application and submissions made during the personal hearing;
Any other factor considered relevant and appropriate
Contraventions & Penalties at a glance


Application for Condonation

Application for compounding

Adjudication proceedings

Penalty/ Confiscation
Quantifiable offence - Upto 3 times
Non quantifiable offence - Upto Rs. 200,000
Continuing penalty - Rs. 5000 per day

Imprisonment if penalty not paid

within prescribed time

Atul Mittal,
Deloitte Heskin & Sells LLP.
2014 Deloitte Touche Tohmatsu India Private Limited
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