RBI revises all in cost for ECB to 450 basis points

Reserve bank of India has revised the all in cost for External Commercial Borrowing (ECB) to 450 basis point above the bench mark rate. The rationalization and liberalization amendments announced by RBI  on April 27, 2018 vide AP( DIR series) circular No. 25 include the following:

a.    A uniform all in cost ceiling of 450 basis points over the benchmark rate. The benchmark rate will be 6 month USD LIBOR or applicable benchmark for respective currency, for Track I and Track II, For Track III (Rupee ECBs) and RDBs, the benchmark rate will be prevailing yield of the Government of India securities of corresponding maturity.

b.    The ECB Liability to Equity Ratio for ECB raised from direct foreign equity holder under the automatic route stands revised to 7:1. This ratio is not applicable if total of all ECBs raised by an entity is up to USD 5 million or equivalent.

c.    Housing Finance Companies, regulated by the National Housing Bank and Port Trusts constituted under the Major Port Trusts Act, 1963 or Indian Ports Act, 1908 become eligible to  to avail of ECBs under all tracks. Such entities, however, shall have a board approved risk management policy and shall keep their ECB exposure hedged 100 per cent at all times for ECBs raised under Track I.

d.    Companies engaged in the business of Maintenance, Repair and Overhaul and freight forwarding are permitted to raise ECBs denominated in INR only.

e.    RBI has decided to announce only a negative list for all tracks for end use. As of now, a positive end-use list is prescribed for Track I and specified category of borrowers, while negative end-use list is prescribed for Track II and III.

The negative list for all Tracks would include the following:

i.    Investment in real estate or purchase of land except when used for affordable housing as defined in Harmonised Master List of Infrastructure Sub-sectors notified by Government of India, construction and development of SEZ and industrial parks/integrated townships.
ii.    Investment in capital market.
iii.    Equity investment.

For Tracks I and III, the following negative end uses will also apply except when raised from Direct and Indirect equity holders or from a Group company, and provided the loan is for a minimum average maturity of five years:
iv.    Working capital purposes.
v.    General corporate purposes.
vi.    Repayment of Rupee loans.
vii.    On-lending to entities for the above activities from (i) to (vi) will also come under negative end use for all tracks. 

External Commercial Borrowing (‘ECB) is a commercial loan raised by eligible resident entity from recognized non-resident entity confirming to conditions specified by Reserve Bank of India (RBI) from time to time. RBI, in consultation with Government of India revises the norms. ECBs can be availed of by eligible entities through three tracks, track I,II and III under automatic route or approval route.