Forex Markets

What has changed after new RBI ECB framework?

Framework for raising loans through External Commercial Borrowings

External Commercial Borrowings (ECB): ECBs are commercial loans raised by eligible resident entities from recognized non-resident entities. The must comply with the parameters such as minimum maturity, permitted and non-permitted end-uses, maximum all-in-cost ceiling, etc.

 

What has changed after RBI’s latest notification on ECB Framework? –

Before RBI notification dated 16th Jan 2019

The framework for raising loans through ECB had three tracks: –

  1. Track I:-

Medium-term foreign currency denominated ECB with a minimum average maturity of 3/5 years. On 19 Sep 2018, RBI allowed Manufacturing sector companies to raise foreign currency denominated ECB up to USD 50 million or its equivalent with a minimum average maturity period of 1 year.

  1. Track II: –

Long term foreign currency denominated ECB with a minimum average maturity of 10 years.

  1. Track III: –

Indian Rupee (INR) denominated ECB with a minimum average maturity of 3/5 years. On 19 Sep 2018, RBI allowed Manufacturing sector companies to raise INR denominated ECBs with a minimum average maturity period of 1 year.

Post-RBI notification dated 16th Jan 2019

  1. Merging of Tracks: –

Track I and Track II are merged as “Foreign Currency denominated ECB”.

Track III and Rupee Denominated Bonds framework as “Rupee Denominated ECB”.

 

Who are the eligible borrowers after RBI’s latest notification on ECB Framework? –

Before RBI notification dated 16th Jan 2019

  1. Under Track I: –
    1. Companies in manufacturing and software development sectors
    2. Shipping and airlines companies
    3. Small Industries Development Bank of India (SIDBI)
    4. Units in Special Economic Zones (SEZs)
    5. Export-Import Bank of India (Exim Bank) (only under the approval route)
    6. Companies in infrastructure sector, Non-Banking Financial Companies – Infrastructure Finance Companies (NBFC – IFC), NBFC-AFC (Asset Finance Companies), Housing Finance Companies regulated by the National Housing Bank, Port Trusts constituted under the Major Port Trusts Act, 1963 or Indian Ports Act, 1908.
  2. Under Track II: –
    1. All entities listed under Track I
    2. Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (INVITs) coming under the regulatory framework of the Securities and Exchange Board of India (SEBI)
  3. Under Track III: –
    1. All entities listed under Track II
    2. All Non-Banking Financial Companies (NBFCs) 14coming under the regulatory purview of the Reserve Bank
    3. NBFCs-Micro Finance Institutions (NBFC – MFIs)
    4. Not for profit companies registered under companies act 2013
    5. Societies, trusts, and cooperatives registered under the Societies registration act
    6. NGOs engaged in micro finance activities
    7. Companies engaged in research and development (other than educational institutions)
    8. Companies supporting infrastructure
    9. Companies providing logistics services
    10. Companies engaged in maintenance, repair, and overhaul and freight forwarding
    11. Developers of special economic zones (SEZs), National Manufacturing and Investment Zones (NMIZs)

Post-RBI notification dated 16th Jan 2019

  1. All Track I, II, III
  2. All entities eligible to receive FDI
  3. Port Trusts
  4. Units in SEZ
  5. EXIM Bank
  6. Entities registered under microfinance activities
  7. Registered not for profit companies
  8. registered societies/trusts/cooperatives and non-government organizations

 

Who are the eligible lenders after RBI’s latest notification on ECB Framework? –

Before RBI notification dated 16th Jan 2019

  1. Under Track I: –
    1. International banks
    2. International capital markets
    3. Multilateral financial institutions (such as IFC, ADB, etc.) / regional financial institutions and Government owned (either wholly or partially) financial institutions
    4. Export credit agencies
    5. Suppliers of equipment
    6. Foreign equity holders
    7. Overseas long-term investors such as:
      1. Prudentially regulated financial entities;
      2. Pension funds
      3. Insurance companies
      4. Sovereign Wealth Funds
      5. Financial institutions located in International Financial Services Centres in India
      6. Overseas branches/subsidiaries of Indian banks

 

  1. Under Track II: –
    1. All entities listed under Track I but for overseas branches/subsidiaries of Indian banks

 

  1. Under Track III: –
    1. All entities listed under Track I but for overseas branches/subsidiaries of Indian banks
    2. In the case of NBFC-MFIs, other eligible MFIs, not for profit companies and NGOs, ECB can also be availed from overseas organizations and individuals

Post-RBI notification dated 16th Jan 2019

  1. The lender should be resident of FATF or IOSCO compliant country
    1. FATF compliant country – A country that is a member of Financial Action Task Force (FATF) or a member of a FATF-Style Regional Body: and should not be a country identified in the public statement of the FATF as
      1. A jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which countermeasures apply
      2. A jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies
    2. IOSCO compliant country – A country whose securities market regulator is a signatory to the International Organization of Securities Commission’s (IOSCO’s) Multilateral Memorandum of Understanding (Appendix A Signatories) or a signatory to bilateral Memorandum of Understanding with the Securities and Exchange Board of India (SEBI) for information sharing arrangements.

 

  1. Multilateral and Regional Financial Institutions, Individuals and Foreign branches/subsidiaries of Indian banks

 

 

 

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