SKP Business Alert
3 May 2018
Relaxation in External Commercial Borrowings Guidelines
Vide notification RBI/2017-18/169 issuing A. P. (DIR Series) Circular No. 25 (hereinafter referred to as Circular) dated 27 April 2018, the Reserve Bank of India (RBI), in consultation with the Government of India, relaxed the guidelines on External Commercial Borrowings (ECB).
Corporates and other entities planning to avail ECB to meet their capital needs were repeatedly approaching RBI for relaxations in the existing ECB framework. In light of the requests received and experience gained in administering the ECB regime, the circular liberalizes the earlier rules regarding the permissible end-use of ECB, expands the list of eligible borrowers by giving an opportunity to more entities, rationalizes the equity to ECB ratio and simplifies the all-in cost for availing ECB.
Following are the key amendments which have been brought by the circular:
Key Points Change brought by the circular
All-in-cost It has been decided to have a flat all-in-cost ceiling, uniform at 450 basis points over the benchmark for ECB and Rupee Denominated Bonds (RDBs) (commonly referred to as Masala Bonds). The benchmark under Track I and Track II would be London Interbank Offer Rate (LIBOR) and for Track III would be the prevailing yield of G-Sec of the corresponding maturity.
This change has done away with different slabs of cost for different maturities.
Permissible end-use It has been decided to have only a negative list under all the tracks to bring uniformity.

The negative list is:
  • Under Track I, II, and III shall be as under:
    1. Investment in real estate or purchase of land except when used for affordable housing as defined in Harmonized Master List of infrastructure sub-sectors notified by the Government of India, construction, and development of Special Economic Zones (SEZ) and industrial parks/integrated townships.
    2. Investment in the capital market.
    3. Equity investment.
  • For Tracks I and III:
    1. Working capital purposes.
    2. General corporate purposes.
    3. Repayment of Rupee loans.
      (These entities will be allowed to raise ECB when raised from direct and indirect equity holders or from a group company, and the loan such raised is for a minimum average maturity of five years)
  • Furthermore, for all three tracks:
    1. On-lending to entities for the above activities from (a) to (f).
Earlier, the negative list was only under Track II and Track III.
ECB liability to equity ratio It is decided to increase the ECB liability to equity ratio under automatic route for ECB raised from direct foreign equity holder to 7:1 which was earlier limited to 4:1. Under approval route, ECB can be availed above the ratio of 7:1.
This ratio will not be applicable if the total of all ECBs raised by an entity is up to USD 5 million or equivalent.
Eligible borrowers’ list It has been decided to permit the new eligible borrowers as under:
  • Under Tracks I, II and III:
    1. Housing finance companies, regulated by the National Housing Bank.
    2. Port Trusts constituted under the Major Port Trusts Act, 1963 or Indian Ports Act, 1908.
      (These entities shall have a board-approved risk management policy and shall keep their ECB exposure hedged 100% at all times for ECBs raised under Track I)
  • Under Track III only:
    1. Companies engaged in the business of maintenance, repair and overhaul and freight forwarding to raise ECBs denominated in INR only, like issuing a rupee-denominated bond in overseas markets.
SKP's Comments
The relaxation brought is very viable and a lot of new investments may be expected. By allowing ECB for the purchase of land for affordable housing construction companies and bringing housing finance companies under automatic route opens a new route of financing for a sector with massive growth due to a home shortage in the country. The port sector has also been allowed to avail ECB recognizing that companies require increased flexibility and access to various types of financing. The ratio will help big businesses to tap foreign markets without having to take approval for a lot higher amount of ECB borrowings. The offshore funding has been made much more accessible by the above circular, it is to see how the entities now explore this newly abled area here onwards.
  • Pre-investment regulatory advisory
  • Entity formation
  • Business registrations
Urmi Axis | 7th Floor | Famous Studio Lane | Dr. E. Moses Road | Mahalaxmi | Mumbai  | 400 011 | India
+91 22 6730 9000 | |

India | USA | Canada | UAE
This alert contains general information which is provided on an “as is” basis without warranties of any kind, express or implied and is not intended to address any particular situation. The information contained herein may not be comprehensive and should not be construed as specific advice or opinion. This alert should not be substituted for any professional advice or service, and it should not be acted or relied upon or used as a basis for any decision or action that may affect you or your business. It is also expressly clarified that this alert is not intended to be a form of solicitation or invitation or advertisement to create any adviser-client relationship.

Whilst every effort has been made to ensure the accuracy of the information contained in this alert, the same cannot be guaranteed. We accept no liability or responsibility to any person for any loss or damage incurred by relying on the information contained in this alert.

© 2018 . All rights reserved.