As per the existing External Commercial Borrowings (ECB) regulation, to utilize ECB proceeds for working capital purposes, general corporate purposes and repayment of rupee loans, the EBCs had to be taken from a foreign equity holder. Also, the Minimum Average Maturity Period (MAMP) was to be maintained at 5 years. Further, on-lending for these activities out of ECB proceeds was also prohibited.
As a step forward towards rise in access to international markets for eligible Indian borrowers, the Reserve Bank of India (RBI) has liberalized the ECB policy. Now, RBI has permitted accepting ECB for these purposes from any eligible foreign lender, except foreign branches/ overseas subsidiaries of Indian banks, subject to fulfilling other prescribed conditions on limits and leverage. Also, MAMP has been increased to 10 years.
The below matrix sets out the broad changes in ECB framework:
Further, eligible corporate borrowers can avail ECB for repayment of Rupee loans availed domestically for capital expenditure in manufacturing and infrastructure sector if classified as (Special Mention Account (SMA-2) or NPA, under any one time settlement with lenders.
Lender banks are also permitted to sell, through assignment, such loans to eligible ECB lenders, except foreign branches/ overseas subsidiaries of Indian banks, provided, the resultant ECB complies with all-in-cost, minimum average maturity period and other relevant norms of the ECB framework.
The prescribed minimum average maturity provision, as above, for the aforesaid end-uses will have to be strictly complied with under all circumstances. All other provisions of the ECB policy remain unchanged.
HSCo Comments: These are welcome amendments made by the RBI in the ECB policy that would help boost the confidence of investors and financers in the present financial slowdown situation of the Indian economy.
(Reference: RBI/2019-20/20 A.P. (DIR Series) Circular No. 04 dated July 30, 2019)
