New External Commercial Borrowings Policy 2019

New External Commercial Borrowings Policy

RBI issued revised ECB policy w.e.f January 16, 2019

Basically, on December 17, 2018, Reserve Bank of India (RBI) notified the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 (the "Regulations") and superseded the earlier regulations.

New Regulations	Old Regulations
The Foreign Exchange Management (Borrowing and Lending) Regulations, 2018	Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000 and Foreign Exchange Management (Borrowing and Lending in Rupees) Regulations, 2000

This move was to improve the ease of doing business in India so as to rationalize the existing External Commercial Borrowings (ECB) regulations and INR denominated Bonds.

After implementation of New External Commercial Borrowings (ECB) policy2019, various changes have occurred like;

1)        Who are Eligible Borrowers?

Good news is that now Reserve Bank of India (RBI) has expanded the list of eligible borrowers under New External Commercial Borrowings (ECB) Policy and allowed all the entities (those who are eligible to receive FDI) to raise ECB.

Reserve Bank of India (RBI) has added the following entities as eligible borrowers-

 i.         Port trusts

ii.         Units in SEZ

iii.         SIDBI

iv.         EXIM bank

v.         Registered entities engaged in micro-finance activities namely registered NPO, societies/ trusts/ co-operatives and registered not for profit companies

2)        Who are Recognised Lenders?

Under new ECB Policy, there is no detailed list of eligible lenders under different tracks. However, to determine the lenders who are eligible to lend ECB, there are simple criteria which is as below;

3)        MINIMUM AVERAGE MATURITY PERIOD (MAMP)

Reserve Bank of India (RBI) streamlined the provisions with respect to MINIMUM AVERAGE MATURITY PERIOD (MAMP).  

MAMP shall be 3 years for all ECBs under the New Regulations.

There is exception to above 3 years MAMP which is for manufacturing sector companies which is 1 year

For Manufacturing companies	MAMP is 1 year
For all other companies	MAMP is 3 years
ECB by eligible borrower from its Foreign Equity holders	MAMP is 5 years provided it complies prescribed conditions

4)  Automatic Route/ Approval Route

Under the ECB/TC framework, ECB/TC can be raised either under the automatic route or under the approval route. Under the approval route, the prospective borrowers are required to send their requests to the Reserve Bank through their Authorised Dealer (AD) Banks for examination.

5)  Types of ECB

ECB denominated in Foreign Currency	ECB denominated in INR
Loans including bank loans, floating fixed rate notes/ bonds/ debentures (other than fully and compulsorily convertible)	Loans including bank loans, floating fixed rate notes/ bonds/ debentures/ preference shares (other than fully and compulsorily convertible)
Trade credits beyond 3 years	Trade credits beyond 3 years
Financial Lease	Financial Lease
FCCBs and FCEBs	Plain vanilla Rupee denominated bonds issued overseas (RDBs)

6)  What is Hedging?

                i.      Reserve Bank of India (RBI) has modified hedging provisions with respect to ECBs denominated in foreign currency, though operational aspects remain the same.

               ii.      Now with the new External Commercial Borrowings (ECB) Policy, only infrastructure space companies are obligated to hedge 70% of its proceeds if ECBs are raised with an MAMP of less than 5 years.

             iii.      All other entities are required to follow the guidelines for hedging issued by the concerned sectoral or prudential regulator.

7)  Reporting Requirements

S.No	Form	Purpose	Reporting
1	Form ECB	1)      To obtain Loan Registration Number (LRN)* *Please note that the Withdrawal of ECB proceeds should happen only after obtaining LRN 2)      To report terms and conditions of the ECB for all categories and any amount of ECBs.  3)      To report changes in ECB parameters	1) The entity is required to submit the same within 7 days from the date of signing of loan agreement/ date of change
2	ECB 2 Return	To report actual ECB transactions	The ECB monthly return is required to be filed within 7 working days from the closure of previous month to which it relates

8)  Late Submission Fee (LSF)for delay in reporting

RBI has specified the provisions with respect to regularization of delay in reporting by payment of late submissions fees as detailed below:

S.No	Type of Return/ Form	Period of Delay	Applicable LSF (In Rs.(INR))
1.	Form ECB 2	Up to 30 days from the due date of submission	5,000
2	Form ECB 2/ Form ECB	Up to 3 years from the due date of submission/ date of drawdown of ECB proceeds	50,000 per year
3	Form ECB 2/ Form ECB	Beyond 3 years from the due date of submission/ date of drawdown of ECB proceeds	1,00,000 per year

In case the entity/ applicant misses the payment of LSF. Non-payment of LSF will be treated as a contravention of reporting provisions and shall be subject to compounding or adjudication as per FEMA, 1999.