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What is External Commercial Borrowings (ECB)?

External Commercial Borrowings (ECB) policy has been liberalised recently. What is ECB?

What is External Commercial Borrowings (ECB)?

External Commercial Borrowings (ECB) are commercial loans raised by eligible resident entities from recognised non-resident entities and should conform to parameters such as minimum maturity, permitted and non-permitted end-uses, maximum all-in-cost ceiling, etc. 

How can ECB be raised?

ECB can be raised under –

  1. Approval route – the prospective borrowers are required to send their requests to Reserve Bank of India (RBI) through their Authorised Dealer (AD) Banks for examination.
  2. Automatic route – the cases are examined by the Authorised Dealer Category-I (AD Category-I) banks.

What are the parameters for raising ECB?

Parameters FCY denominated ECB Rupee denominated ECB
Currency of borrowing Any freely convertible foreign currency Indian Rupee (INR)
Benchmark rates Any widely accepted interbank rate or ARR of 6-month tenor, applicable to the currency of borrowing. Prevailing yield of the Government of India securities of corresponding maturity.
All-in-cost ceiling per annum Benchmark Rate + 550 bps spread – for existing ECBs linked to LIBOR whose benchmarks are changed to ARR.
Benchmark rate + 500 bps spread – for new ECBs. 		Benchmark rate + 450 bps spread.
All-in-cost ceiling has been temporarily increased by 100 bps for ECBs raised till December 31, 2022. The enhanced ceiling is available only to eligible borrowers of investment grade rating from Indian Credit Rating Agencies (CRAs). Other eligible borrowers may raise ECB within the existing all-in-cost ceiling as hitherto.
Limit and leverage All eligible borrowers can raise ECB up to USD 750 million or equivalent per financial year under the automatic route.
The automatic route limit stands increased from USD 750 million or equivalent to USD 1.5 billion or equivalent for ECBs to be raised till December 31, 2022.
Change of currency of borrowing Change of currency of ECB from one freely convertible foreign currency to any other freely convertible foreign currency as well as to INR is freely permitted. Change of currency from INR to any freely convertible foreign currency is not permitted.

Where can ECB proceeds be parked?

ECB proceeds are permitted to be parked abroad as well as domestically.

ECB borrowers are allowed to park ECB proceeds in term deposits with AD Category-I banks in India for up to 12 months cumulatively. These term deposits are to be kept in unencumbered position.

What are the reporting timelines for ECB transactions?

The borrowers are required to report actual ECB transactions in Form ECB-2 Return through the AD Category-I bank on monthly basis, so as to reach RBI within 7 working days from the close of month to which it relates. 

Information regarding the name of the borrower, amount, purpose and maturity of ECB under both Automatic and Approval routes are put on the RBI’s website, on a monthly basis, with a lag of 1-month to which it relates.


References

Reserve Bank of India. (2019, March 26). 'Master Direction - External Commercial Borrowings, Trade Credits and Structured Obligations (Updated as on September 30, 2022)'. Retrieved from https://rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11510

Reserve Bank of India. (2022, August 01). 'External Commercial Borrowings (ECB) Policy – Liberalisation Measures'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12366&Mode=0

Reserve Bank of India. (2022, July 28). 'Foreign Exchange Management (Borrowing and Lending) (Amendment) Regulations, 2022'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12377&Mode=0


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