External Commercial Borrowing (ECB)
External Commercial Borrowing, popularly known as 'ECB', are commercial loans raised by eligible resident entities from recognized non-resident entities confirming to conditions specified by Reserve Bank of India (RBI) from time to time. Borrowers preferring to opt for External Commercial Borrowing should conform to parameters such as minimum maturity period, permitted and non-permitted end-uses, maximum all-in-cost ceilings etc. These parameters shall apply in totality and not on standalone basis. RBI, in the light of experience being gained from administering ECB regime will revise the parameters in discussion with government of India, from time to time.
The difference between ECB and FDI
External Commercial Borrowing (ECB) covers borrowing by eligible resident entities from permitted foreign sources for financing the commercial activities in India. ECB includes all funding from foreign source into India other than towards Equity. Foreign money directly used to finance Equity is termed as Foreign Direct Investment (FDI). Thus, borrowing for financing commercial activities in India is classified under ECB whereas investment in equity is classified under FDI.
The following, however, are not treated as ECB:
a. Foreign currency loans given domestically by AD Category I banks out of proceeds of FCNR (B) deposits.
b. The investments in NCDs in India made by Registered Foreign Portfolio Investors (RFPIs).
Permitted tracks for raising ECB
The framework for raising loans through ECB comprises the following three tracks:
Track I: Medium term foreign currency denominated ECB with minimum average maturity period of 3/5 years.
Track II: Long term foreign currency denominated ECB with minimum average maturity period of 10 years.
Track III: INR denominated ECB with minimum average maturity period of 3/5 years.
The parameters to be met, ceiling limit, eligibility norms etc under each track is already in place.
Routes available for raising ECB
An eligible entity desirous of availing ECB can approach AD category-1 bank for availing the facility under the following two routes.
i)Automatic Route – cases to be examined by AD category – I banks
ii)Approval Route – requests are to be forwarded by the prospective borrowers to RBI through their AD banks.
Sources of External Commercial Borrowings
The following are the permitted sources of ECB:
i) Loans including bank loans
ii) Securitized instruments/Capital market instruments such as floating rate notes & fixed rate bonds, nonconvertible/partially convertible/optionally convertible preference shares/debentures
iii) Buyers' credit
iv) Suppliers' credit
v) FCCBs
vi) Financial Lease
vii) FCEBs
Restrictions:
a. The first six forms of borrowing mentioned above can be raised both under automatic and approval routes. But, FCEBs can be issued under approval route only.
b. Import of second hand goods as per DGFT guidelines, by raising ECB, permitted only under approval routes.
c. On-lending by EXIM Bank using ECB funds permitted only under approval routes.
All in Cost
An all in cost is the sum of all costs involved in a financial transaction. All in cost is used to express the total fees and interest included in a financial transaction, such as a loan or CD purchase, or in a securities trade. The all in cost comparison enables borrowers to easily understand the expense associated with the borrowing.
