|
(Updated
as on June 16, 2017)
These FAQs attempt to put in
place the common queries that users have on the subject in easy to
understand language. However, for conducting a transaction, the Foreign
Exchange Management Act, 1999 (FEMA) and the Regulations made or directions
issued thereunder may be referred to. The relevant Principal Regulations
are the Foreign Exchange Management (Borrowing or lending in foreign
exchange) Regulations, 2000 and Foreign Exchange Management (Borrowing and
lending in Rupees) Regulations, 2000. The directions issued are
consolidated in the Master Direction on External Commercial Borrowings,
Trade Credit, Borrowing and Lending in Foreign Currency by Authorised Dealers
and Persons other than Authorised Dealers.
|
A. External Commercial
Borrowings (ECB) framework
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B. Eligibility for raising ECB
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C. Currency of ECB
|
|
|
|
D. Recognised Lenders/
Investors
|
|
|
|
|
|
|
|
|
|
E. Average Maturity Period/
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F. All-in-cost
|
|
|
|
|
|
G. End-uses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H.
Refinancing of ECB
|
|
|
|
|
|
|
|
|
|
|
|
I. Security/ Guarantee
|
|
|
|
|
|
J. Miscellaneous
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A. External Commercial Borrowings
(ECB) framework
1. Where can one get the details
of extant ECB framework?
The interested party may refer
to Master Direction No.5 dated January 1, 2016 on ‘External Commercial
Borrowings, Trade Credit, Borrowing and Lending in Foreign Currency by Authorised
Dealers and Persons other than Authorised Dealers’ (https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10204) for guidance on the extant framework on ECB.
2. Are there other documents
which the interested party may refer to know more about the extant ECB
framework?
3. From when did the extant ECB
framework become applicable?
4. What if a company had
executed ECB agreement prior to December 2, 2015 and availability period is
beyond March 31, 2016/ commencement of drawdown is after March 31, 2016?
Entities raising ECB under
previous ECB framework can raise the said loans by March 31, 2016 provided
the agreement in respect of the loan is already signed by December 1, 2015.
Further, eligible entities can drawdown the ECB proceeds beyond the
availability period of March 31, 2016 provided such ECBs are contracted on or
before December 1, 2015 and such agreements provide availability period of
ECB to be beyond March 31, 2016. In other words, all ECB loan agreements
entered into prior to the date of the revised ECB framework coming into
effect from December 02, 2015 may continue with the disbursement schedules
post March 31, 2016, as already provided in the loan agreements without
(requiring) further consent from the Reserve Bank or any AD bank.
5. Is the extant ECB framework
different from the framework for issuance of Rupee denominated bonds
overseas?
Yes, extant ECB framework is
different from the framework for issuance of Rupee denominated bonds
overseas. To know more about the framework of issuance of Rupee denominated
bonds overseas, interested party may refer to aforementioned Master
Direction. Both these frameworks (ECB framework and framework for issuance
of Rupee denominated bonds overseas) run separately/concurrently.
6. What are the various types of
ECB?
ECBs can be raised as:
1. Loans, eg., bank loans, loans
from equity holder, etc.
2. Capital market instruments,
e.g.,
a.
floating
rate notes / fixed rate bonds / securitised instruments
b.
non-convertible,
optionally convertible or partially convertible preference shares
c.
FCCB*
d.
FCEB*
3. Buyers’ credit / suppliers’
credit
4. Financial lease
* A foreign currency convertible
bond (FCCB) is a type of corporate bond issued by an Indian company in an
overseas market in a currency different from that of the issuer. Investors
have the option of redeeming their investment on maturity or converting the
bonds into equity any time during the currency of the bond. The repayment
of the principal is in the currency in which the money is raised. In case
of a foreign currency exchangeable bond (FCEB), investors have the option
of converting the bonds into equity of the offered company. The company
issuing FCEB shall be part of the promoter group of the offered company and
shall hold the equity shares being offered at the time of issuance of FCEB.
7. Do FCNR (B) loans come under
the ECB framework?
No, foreign currency loans given
domestically by Authorised Dealer Category I banks out of the proceeds of
FCNR (B) deposits do not come under the ECB framework.
8. Does a company, incorporated
in India, raising Rupee denominated loan from an NRI / PIO by way of
Non-Convertible Debentures (NCDs) through a public offer get covered under
the ECB framework?
No, NRI/PIO giving loan in
Rupees to resident company by way of Non-Convertible Debentures (NCDs)
through a public offer is not covered under the ECB framework. It is
covered under Foreign Exchange Management (Borrowing and Lending in Rupees)
Regulations, 2000 issued vide Notification No. FEMA 4/2000-RB dated May 3, 2000 as amended from time to time (as per the
provisions contained in these Regulations, a company incorporated in India
is permitted to raise Rupee denominated loan from an NRI / PIO only by way
of issuance of NCDs through a public offer and is subject to other
provisions contained in these Regulations).
9. What precautions have to be
taken before raising loan from overseas?
Interested party may note that
borrowings from overseas have to be in compliance with the applicable ECB
guidelines / provisions contained in the Foreign Exchange Management
(Borrowing or Lending in Foreign Exchange) Regulations, 2000 issued
vide Notification No. FEMA 3/2000-RB dated May 3, 2000 as amended from time to time, as applicable /
applicable provisions contained in the Foreign Exchange Management
(Borrowing and Lending in Rupees) Regulations, 2000 issued vide Notification No. FEMA 4/2000-RB dated May 3, 2000 as amended from time to time.
10. Whose responsibility is to
ensure compliance with ECB guidelines?
The primary responsibility for
ensuring that the borrowing is in compliance with the applicable ECB
guidelines is that of the borrower concerned. Any contravention of the
applicable provisions of ECB guidelines will invite penal action under the
FEMA. Same would be the case for devising a structure which bypasses /
circumvents ECB guidelines in any manner and / or raising borrowings in any
other manner which is not permitted / disguising borrowing under the wrap
of other kind of transactions (like raising export advance(s) without
actual exports or raising of export advance by circumventing ECB guidelines
by creating any structure overseas or otherwise, etc.) and / or
contravening provisions of Regulations mentioned in question 9 above.
B. Eligibility for raising ECB
11. Where can one get more
details regarding eligibility of an entity to raise ECB?
Interested party may please
refer to the aforementioned Master Direction.
12. Is a Limited Liability
Partnership (LLP) or Partnership firm or Proprietary concern eligible to
raise ECB?
No, entities which are not
covered within the provisions contained in Master Direction stated above
[like companies doing trading business (whether online or otherwise),
companies involve in activities like tourism, beauty parlour / beauty
clinics, entertainment business, retail sales, e-commerce companies, etc., on
any other activity not covered within these provisions] are not eligible to
raise ECB.
13. Whether all companies
operating in software sector space eligible to raise ECB?
No, only those companies in
software sector space who are into development of software are eligible to
raise ECB. Companies who are into designing and engineering consultancy,
servicing of third-party software, providing ancillary IT related services,
ITeS, etc., are not considered as software development companies for ECB
purposes.
14. What does the term
infrastructure sector mean for the purpose of ECB?
For the purpose of raising ECB,
Infrastructure Sector has the same meaning as given in the Harmonised
Master List of Infrastructure sub-sectors approved by Government of India
vide Notification F. No. 13/06/2009-INF as amended / updated from time to
time. Further, for the purpose of ECB, Exploration, Mining and Refinery
sectors are also deemed as in the infrastructure sector.
15. What are ‘companies
supporting infrastructure’?
Companies who help in operations
or building of infrastructure as defined in Harmonised Master List of
Infrastructure sub-sectors issued by Ministry of Finance as mentioned in
the question 14 above will be considered companies supporting
infrastructure.
16. Whether educational
institutes/ universities/ deemed universities are eligible to raise ECB?
If the educational
institute/university/ deemed university is registered as a company under
the Companies Act 1956/2013, it can raise ECB as a part of infrastructure sub-sector.
ECB guidelines as applicable for infrastructure companies would be
applicable for such ECBs.
17. Whether the restrictions in
respect of the eligibility of borrowing entities also applicable to
Startups?
No, any entity which is
recognised as a Startup by the Central Government as on date of raising
ECB, would be eligible to raise ECB, irrespective of its business
activities,.
C. Currency of ECB
18. What are the requirements in
respect of currencies of ECB?
ECB can be raised in Indian
Rupees (INR) and / or any convertible currency. Any entity raising INR
denominated ECB is not permitted to convert the liability arising out of
this ECB into foreign currency liability in any manner or assuming foreign
currency risk is any manner by either entering into a derivative contract
or otherwise.
D. Recognised Lenders/ Investors
19. What do you mean by
prudentially regulated financial entities?
By prudentially regulated
financial entities, we mean that the overseas entity is bound by prudential
norms / regulations issued by the sector regulator(s) of the host country.
This can be explained by giving the example of non-banking financial
companies (NBFCs) in India. These NBFCs, in order to operate in non-banking
financial sector space in India are issued Certificate of Registration by
RBI (sector regulator). Further, after registration these companies are
subject to supervision by RBI. Similar prudential norms / regulations
should be applicable to the overseas financial entity by the respective
overseas sector regulator in order for such entity qualifying as a
recognised lender under prudentially regulated financial entity category.
20. A foreign equity holder
holding minimum 25% direct equity holding in the borrowing entity or
minimum indirect equity holding of 51% in the borrowing entity is a
recognised lender. Can the foreign equity holder dispose-off the holding
once ECB is contracted?
No, all ECB guidelines including
those related to minimum equity holding, are to be fulfilled during the
whole tenure of the ECB and not only at the time of contracting of ECB.
21. Whether ECB liability:
equity ratio of 4:1 under the automatic route (7:1 under the approval
route) is applicable for raising ECB from both direct and indirect equity
holders under automatic route?
No, it is only applicable to
direct equity holders.
22. Whether the equity in ECB
liability to equity ratio includes non-convertible preference capital?
No, however, compulsorily and
mandatorily convertible debentures (convertible within a specified time)
and compulsorily and mandatorily convertible preference shares (convertible
within a specified time) can be included for calculation of the equity in
ECB liability to equity ratio.
E. Average Maturity Period/
Amount
23. How is average maturity
period calculated?
24. Can door-to-door maturity be
used in lieu of average maturity?
No.
25. Whether the minimum average
maturity period under the Track I of the ECB framework is solely decided on
the basis of amount of ECB? Whether the minimum maturity of 5 years is
applicable only to ECBs of ticket size beyond USD 50 million or equivalent
and above? What about ECB raised under the Track II?
No, the applicable minimum
average maturity period for an ECB under Track I would be decided not only
from the amount of ECB but also from the all-in-cost of the ECB. For
example, for an ECB of amount less than USD 50 million, if the all-in-cost
is exceeding Libor + 300 bps per annum, the applicable minimum maturity
period would be 5 years. For ECBs of ticket size beyond USD 50 million
equivalent and for ECBs of any ticket size when the aggregate ECB borrowing
during a financial year breaches USD 50 million equivalent under Track I,
the minimum average maturity period shall be 5 years. Any ECB raised under
Track II of the ECB framework, irrespective of the amount, should have
minimum average maturity of 10 years.
26. Can for an ECB raised under
Track I for general corporate purpose (which is permitted only for direct
foreign equity holder), repayment of principal of ECB start before the
completion of 5 years?
Yes, however, the ECB should
have minimum average maturity period of 5 years.
27. Whether all outstanding ECBs
including the proposed one taken into account for the purpose of ECB
liability to equity ratio?
Yes, apart from ECB raised for
refinancing where the proposed ECB amount may not be taken into account to
avoid double counting.
28. Whether ECB liability
includes non-convertible / partially convertible preference shares?
Borrowing from a person resident
outside India by way of issue of preference shares on or after April 30,
2007, other than those which are fully and mandatorily convertible into
equity within a specified time, as well as borrowing from a person resident
outside India by way of issue of debentures on or after June 07, 2007,
other than those which are fully and mandatorily convertible into equity
within a specified time, would be treated as ECB and has to conform to ECB
guidelines. Thus, the borrowing raised through such instruments after
aforesaid dates would be considered for calculation of ECB liability.
29. Whether for the purpose of
computing ECB liability to equity ratio, only the proposed ECB amount would
be taken into account or will it take into account all outstanding ECBs
including the proposed one?
For the purpose of computing ECB
liability to equity ratio, all outstanding ECBs including the proposed one
will be taken into account.
F. All-in-cost
30. Can an eligible borrower
simultaneously raise ECBs under Track I and Track II?
Yes, as long as the ECBs are in
compliance with the ECB guidelines for the respective tracks as per RBI
guidelines.
31. What is meant by
‘all-in-cost under Track III should be in line with market conditions’?
The all-in-cost for Rupee
denominated ECB should be comparable with rates at which such entities can
raise Rupee loans in Indian market for similar term period.
G. End-uses
32. Can ECB be raised under
Track II for general corporate purpose (including working capital)? What
will be its minimum average maturity period?
Yes, ECB can be raised under
Track II for general corporate purpose (including working capital). The
minimum average maturity period will be 10 years.
33. Does all-in-cost ceiling
apply on a continuous basis or can be calculated even on average basis?
All-in-cost should be within the
applicable ceiling at all times, for eg., giving interest breaching the
ceiling in first year and much lower in second year so as to comply on an
average, is not permitted.
34. Can ECB be raised under
Track III for general corporate purpose (including working capital)? What
will be its minimum average maturity period?
Yes, ECB can be raised under
Track III (i.e INR denominated ECB) for general corporate purpose
(including working capital). The minimum average maturity period will be 3
years for ECB upto USD 50 million or equivalent and 5 years for ECB beyond
USD 50 million or equivalent.
35. Can ECB be used for real
estate activities?
No. All activities under real
estate are not permitted as eligible end use for raising ECB.
36. Is import of technical
know-how which is not part of a capital good an eligible end use for the
purpose of ECB?
No.
37. Can proceeds of ECB, raised
under previous framework be used for end uses permitted under the revised
framework?
No. ECB raised under the
previous framework can be used for end uses permitted under the old
framework only.
38. Can shipping/ airline
companies avail ECB under Track I for refinance of trade credit raised for
import of vessels?
No, shipping and airline
companies can raise ECB under Track I only for import of vessels/
aircrafts.
39. Can shipping/airlines
companies raise ECB under Track I for import of second hand vessels?
Yes, only under the approval
route.
40. Is ECB permitted for import
of services?
No.
41. Can ECB be availed for
repayment of domestic INR loan?
Yes, provided the ECB is raised
under the Track II and III of the ECB framework. However, it is not
permitted for NBFCs, developers of SEZs/NMIZs, NBFC-MFIs, NGOs and not for
profit companies.
42. Can ECB be availed for
making equity investment domestically?
No.
43. Can ECB be availed for
making contribution in LLP?
No, it is not permitted under
any track.
44. Can proceeds of ECB raised
under Track I of the framework be used for payment of overdue import bills?
Though proceeds of ECB raised
under the Track I of the framework can be used for payment of capital goods
already shipped / imported but unpaid, the same cannot be used for payment
of overdue import bills.
45. Can an eligible borrower
raise fresh ECB under Track II for repayment of existing Rupee denominated
ECB?
Refinancing of Rupee denominated
ECB with Foreign Currency denominated ECB under Track II is not permitted.
H. Refinancing of ECB
46. Can an ECB raised under the
erstwhile USD 10 billion scheme be refinanced under the revised ECB
framework?
No, the repayment of ECB raised
under USD 10 billion scheme is to be undertaken through forex revenues.
47. Can ECB raised under the
earlier ECB framework be refinanced through an ECB raised under extant ECB
framework?
Yes, provided that company
continues to be eligible to raise ECB under the extant ECB framework,
all-in-cost is lower of the all-in-cost of existing ECB or as applicable to
the respective track under the extant framework and residual maturity is
not reduced.
48. Can ECB under revised ECB
framework be raised with average maturity period of 5 years (under Track I)
to refinance ECB raised under previous ECB framework?
Yes, however, the all-in-cost
should be lower of the all-in-cost of existing ECB or 6 month LIBOR+450 bps
per annum. Further, the entity should be eligible to raise ECB under Track
I and residual maturity should not reduce.
49. Is 100 per cent mandatory
hedging applicable to infrastructure space entities for ECBs being
refinanced, which were raised under the earlier ECB framework?
No. Such ECBs will be exempt
from the mandatory hedging clause, however, they are encouraged to
undertake hedging for the open currency risk exposure.
50. Does the condition of
refinancing of ECBs at lower all-in-cost also apply to Track III ECBs?
Yes, if the original ECB raised
under Track III is to be refinanced with another ECB under Track III.
However, when refinancing of existing foreign currency denominated ECB
(Track I/ II) is done by raising Rupee denominated ECB (Track III), the
condition regarding lower all-in-cost of the fresh ECB will not apply.
I. Security/ Guarantee
51. Is corporate guarantee from
overseas permitted for ECB?
Yes, but only in cases where the
overseas guarantor fulfills the criteria of recognised lender under extant
ECB guidelines. Fees payable, if any, for this guarantee will form part of
All-in-cost of the ECB.
52. Can overseas bank give
guarantee for ECB?
An overseas bank (not overseas
branches / subsidiaries of Indian bank) is permitted to give guarantee from
overseas for ECB, provided it is recognised as ECB lender as per extant ECB
guidelines. It may be noted that guarantee fee will form part of
all-in-cost of the ECB.
J. Miscellaneous
53. What precautions have to be
taken at the time of filing of Form 83 in respect of an ECB?
Any draw-down in respect of an
ECB as well as payment of any fees / charges for raising an ECB should
happen only after obtaining the Loan Registration Number (LRN) from RBI by
filing duly certified Form 83 to the Director, Balance of Payments
Statistics Division, Department of Statistics and Information Management
(DSIM), Reserve Bank of India, Bandra-Kurla Complex, Mumbai – 400 051
(Contact numbers 022-26572513 and 022-26573612). It should be ensured that
all terms and conditions of the ECB are reported correctly in Form 83 and
none of the columns are left blank (such columns which are not applicable
for the borrowing or against which ‘nil’ information has to be given,
should be suitably covered). Changes in ECB parameters, whether under the
automatic route with the approval of Authorised Dealer Category –I banks or
under the approval route with prior approval of the RBI, should also be
reported to the DSIM through revised Form 83 at the earliest, in any case
not later than 7 days from the changes effected. While submitting revised
Form 83, the changes should be specifically mentioned in the communication.
Any failure to comply with reporting guidelines in respect of Form 83 for
an ECB may invite penal action under FEMA.
54. How are actual transactions
of an ECB reported to RBI?
The borrowers are required to
report actual ECB transactions, correctly and fully, through duly certified
ECB 2 Return through the Authorised Dealer Category-I bank to DSIM as per
the periodicity specified by the RBI. None of the columns in ECB 2 Return
should be left blank (such columns which are not applicable for the
borrowing or against which ‘nil’ information has to be given, should be
suitably covered). The ECB 2 Return should reach DSIM within seven working
days from the close of month to which it relates. Changes, if any, in ECB
parameters should also be incorporated in ECB 2 Return suitably. Any
failure to comply with reporting guidelines in respect of ECB 2 Return,
including failure to adhere to periodicity of reporting, may invite penal
action under FEMA.
55. In light of the revised ECB
framework, does the borrower need to file revised Form 83?
No, in case no changes are made
in terms and conditions of ECB, there is no need to file revised Form 83.
56. Can fixed deposits created
out of ECB proceeds, pending utilization, be renewed after completion of
maximum permitted period?
No.
57. What is the meaning of 100
per cent hedging of ECB wherever it is so mandated by the RBI?
Wherever 100 percent hedging has
been mandated by the RBI, ECB borrowers shall keep their ECB exposure
hedged 100 per cent at all times, which would be verified by the Authorised
Dealer Category-I bank concerned and reported to RBI through ECB 2 returns.
Besides, the ECB borrower shall also have a board approved risk management
policy for the ECBs.
58. What are the operational
aspects of hedging of ECB wherever it is mandated by the RBI?
Wherever hedging has been
mandated by the RBI, the following should be ensured:
i. Coverage: The ECB borrower
will be required to fully cover principal as well as coupon through
financial hedges. The financial hedge for all exposures on account of ECB
should start from the time of each such exposure (i.e. the day liability is
created in the books of the borrower).
ii. Tenor and rollover: A
minimum tenor of one year of financial hedge would be required with
periodic rollover duly ensuring that the exposure on account of ECB is not
unhedged / underhedged at any point during the currency of ECB.
iii. Natural Hedge: Natural
hedge, in lieu of financial hedge, will be considered only to the extent of
offsetting projected cash flows / revenues in matching currency, net of all
other projected outflows. For this purpose, an ECB may be considered
naturally hedged if the offsetting exposure has the maturity/cash flow
within the same accounting year. Any other arrangements/ structures, where
revenues are indexed to foreign currency will not be considered as natural
hedge.
59. What are the permitted
derivative products for hedging of ECB?
Hedging for ECB purposes means
hedging currency risk through products as permitted under Master Direction on Risk Management and Inter-bank
dealings. Use of any cost reduction
structure for hedging of ECB, which does not fully cover the foreign
exchange risk currency risk associated with ECB any time during the
currency of the borrowing, is not permitted.
60. What are the other
requirements in respect of hedging of ECB?
An entity which is raising
foreign currency denominated ECB is also required to follow the guidelines
for hedging issued, if any, by the respective sector / prudential regulator
in respect of foreign currency exposure.
61. What are the major
requirements for Indian banks to participate in ECB space?
Indian banks are not permitted
to raise ECB. They can act as ECB lenders (through their overseas branches
/ subsidiaries) only under Track I of the ECB framework duly ensuring that
the applicable prudential norms are complied with. They are, however, not
permitted to refinance existing ECBs. Further, any case involving
repayment/refinancing of any foreign currency loan by way of rupee loans
from Indian banks, prudential guidelines stipulated in paragraph 4(b) of Circular No. BP.BC.85/21.04.048/2014-15 dated April
06, 2015issued by the Department of
Banking Regulation (DBR) of RBI will be applicable which interalia state that
such refinance shall be treated as ‘restructuring’ (and classified/provided
for as per extant prudential norms on income recognition, asset
classification and provisioning), if the above is extended to a borrower
who is under financial difficulty and involve concessions that the bank
would otherwise not consider. It should also be noted that if the ECB
borrower concerned has availed credit facilities from the Indian banking
system including overseas branches/subsidiaries, any extension of tenure /
change in average maturity period of ECB / change in all-in-cost of ECB/
conversion of unpaid ECBs into equity (whether matured or not) shall be
subject to applicable prudential guidelines issued by the DBR of RBI,
including guidelines on restructuring, as applicable. Further, such
conversion of ECB into equity shall also be subject to consent of other
lenders, if any, to the same borrower or at least information regarding
conversions shall be exchanged with other lenders of the borrower.
62. What are the primary roles
of the designated Authorized Dealer Category-I bank?
The designated Authorized Dealer
Category-I bank, which is the bank branch designated by the ECB borrower,
would be primarily responsible for meeting the reporting requirements
including obtaining of LRN, exercising the delegated powers under these
guidelines and monitoring of ECB transactions.
Source:-GOI Website.
|
No comments:
Post a Comment