Tag Archives: ECBs

external commercial borrowings

External Commercial Borrowings (ECB) Policy – Relaxation in the period of parking of unutilised ECB proceeds in term deposits

Please refer to paragraph 12 of the Governor’s Statement on Developmental and Regulatory Policies dated April 07, 2021. In this connection, attention of Authorized Dealer Category-I (AD Category-I) banks is invited to paragraph 4.2 of the of Master Direction No.5 dated March 26, 2019, on “External Commercial Borrowings, Trade Credits and Structured Obligations”, in terms of which ECB borrowers are allowed to park ECB proceeds in term deposits with AD Category-I banks in India for a maximum period of 12 months cumulatively.

2. Based on requests from stakeholders, including Industry associations, and with a view to providing relief to the ECB borrowers affected by the Covid-19 pandemic, it has been decided to relax the above stipulation as a one-time measure. Accordingly, unutilised ECB proceeds drawn down on or before March 01, 2020 can be parked in term deposits with AD Category-I banks in India prospectively for an additional period up to March 01, 2022.

3. All other provisions of the ECB policy remain unchanged. AD Category-I banks should bring the contents of this circular to the notice of their constituents/ customers.

4. The aforesaid Master Direction No. 5 dated March 26, 2019, is being updated to reflect the changes.

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ECBs denominated in INRs

External Commercial Borrowings denominated in Indian Rupees were allowed by RBI vide its circular dated September 3, 2014. But in that circular the external lenders were required to enter into rupee swap transactions with the Authorised Dealer Category I banks in India. Now they have given some flexibility to recognised lenders abroad to enter into swap transactions with their overseas banks who in turn will enter into a back to back swap transaction with an Authorised Dealer Category 1 bank in India. The detailed instruction are now given in their latest circular dated 21st May, 2015, which is reproduced below:

To facilitate ECB lending denominated in INR by overseas lenders, it has now been decided that such lenders may enter into swap transactions with their overseas bank which shall, in turn, enter into a back-to-back swap transaction with any AD Cat-I bank in India as per the procedure given below:

(i) The recognised non-resident lender approaches his overseas bank with appropriate documentation as evidence of an underlying ECB denominated in INR with a request for a swap rate for mobilising INR for onward lending to the Indian borrower.

(ii) The overseas bank, in turn, approaches an AD Cat-I bank for a swap rate along with documentation furnished by the customer that will enable the AD bank in India to satisfy itself that there is an underlying ECB in INR (scanned copies would be acceptable).

(iii) A KYC certification on the end client shall also be taken by the AD bank in India as a one-time document from the overseas bank.

(iv) Based on the documents received from the overseas bank, the AD bank in India should satisfy itself about the existence of the underlying ECB in INR and offer an indicative swap rate to the overseas bank which, in turn, will offer the same to the non-resident lender on a back-to-back basis.

(v) The continuation of the swap shall be subject to the existence of the underlying ECB at all times.

(vi) On the due date, settlement may be done through the Vostro account of the overseas bank maintained with its correspondent bank in India.

(vii) All other Operational Guidelines, Terms and Conditions as contained in the annex to A.P. (DIR Series) Circular No.63 dated December 29, 2011 governing hedging of ECBs denominated in INR shall apply, mutatis mutandis.

(viii) The concerned AD Cat-I bank shall keep on record all related documentation for verification by Reserve Bank.

The RBI circular can be found here i.e. https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=9731&Mode=0

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Re-schedulement of ECBs – simplification of procedure

RBI has vide its circular dated simplified its procedure for re-schedulement of External Commercial Borrowings. The re-schedulement will now be allowed subject to the following conditions:

  1. Changes, if any, in all-in-cost (AIC) is only on account of the change in average maturity period (AMP) due to re-schedulement of ECB and post re-schedulement, the AIC and the AMP are in conformity with applicable guidelines. There should not be any increase in the rate of interest and no additional cost (in foreign currency / Indian Rupees) should be involved.

  2. The re-schedulement is allowed only once, before the maturity of the ECB.

  3. If the lender is an overseas branch of a domestic bank, the prudential norms applicable on account of re-schedulement should be complied with.

  4. The changes on account of re-schedulement should be reported to DSIM through revised Form 83.

  5. The ECB should be in compliance with all applicable guidelines related to eligible borrower, recognised lender, AIC, AMP, end-uses, etc.

  6. The borrower should not be in the default / caution list of RBI and should not be under the investigation of Directorate of Enforcement.

The re-schedulement facility will be available both on automatic and approval route ECBs. The copy of the RBI circular can be found here.

http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=8870&Mode=0 

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