EXTERNAL COMMERCIAL BORROWINGS

External Commercial Borrowings (ECB) refer to commercial loans [in the form of bank loans, buyers’ credit, suppliers’ credit, securitised instruments (e.g. floating rate notes and fixed rate bonds)] availed from non-resident lenders with minimum average maturity of 3 years. Even loans from Foreign Equity Holders are considered as ECBs. 

Thus ECBs mean foreign currency loan raised by residents from recognised lenders. 

ECB can be accessed under two routes, viz., (i) Automatic Route and (ii) Approval Route

AUTOMATIC ROUTE

Eligible borrowers

(a) Corporates (registered under the Companies Act, except financial intermediaries (such as banks, financial institutions (FIs), housing finance companies and NBFCs) are eligible to raise ECB.

(b) Individuals, Trusts and Non- Profit making Organisations are not eligible to raise ECB.

(c) Units in Special Economic Zones (SEZ) are allowed to raise ECB for their own requirement. However, they cannot transfer or lend ECB funds to sister concerns or any unit in the Domestic Tariff Area.

ECB for investment in real sector –industrial sector, especially infrastructure sector-in India, are under Automatic Route, i.e. do not require RBI/Government approval. 

Recognised lenders

Borrowers can raise ECB from internationally recognised sources such as (i) international banks, (ii) international capital markets, (iii) multilateral financial institutions (such as IFC, ADB, CDC, etc.,), (iv) export credit agencies, (v) suppliers of equipment,(vi) foreign collaborators and (vii) foreign equity holders.

APPROVAL ROUTE

Eligible Borrowers

The following types of proposals for ECB are covered under the Approval Route:

a) Financial institutions dealing exclusively with infrastructure or export finance such as IDFC, IL&FS, Power Finance Corporation, Power Trading Corporation, IRCON and EXIM Bank are considered on a case by case basis.

b) Banks and Financial Institutions which had participated in the textile or steel sector restructuring package as approved by the Government are also permitted to the extent of their investment in the package and assessment by Reserve Bank based on prudential norms. 

c) ECB with minimum average maturity of 5 years by Non-Banking Financial Companies (NBFCs) from multilateral financial institutions, reputable regional financial institutions, official export credit agencies and international banks to finance import of infrastructure equipment for leasing to infrastructure projects.

d) Special Purpose Vehicles, or any other entity notified by the Reserve Bank, set to finance infrastructure companies / projects exclusively, will be treated as Financial Institutions and ECB by such entities and will be considered under the Approval Route.

e) Non-Government Organisations (NGOs) engaged in micro finance activities are eligible to avail ECB for Rupee expenditure for permissible end-uses. 

f) Corporates in service sector viz. hotels, hospitals and software companies can avail ECB for import of capital goods.

Recognised Lenders

Borrowers can raise ECB from internationally recognised sources such as (i) international banks, (ii) international capital markets, (iii) multilateral financial institutions (such as IFC, ADB, CDC, etc.), (iv) export credit agencies, (v) suppliers’ of equipment, (vi) foreign collaborators and (vii) foreign equity holders (other than erstwhile OCBs).