There are multiple ways in which foreign investments can be attracted to India. One of the prominent ways is to raise investments by way of debt. This is commonly known as External Commercial Borrowings (ECB) and is subject to FEMA rules and regulations. What are ECBs and what are the key external commercial borrowing rules in India? Let us find out!
External Commercial Borrowings are commercial loans that are raised by eligible resident entities from recognized non-resident entities. There are various parameters to which the ECB transactions shall adhere In India, investments can be raised through the following two modes of ECB:
The following are the benefits of raising ECBs:
The following are the external commercial borrowing rules that you should follow while raising funds through ECB:
1.) Currency: As discussed earlier, ECBs can be either raised in Indian currency (INR) or any other freely convertible foreign currency.
2.) Eligible Borrowers: All the borrowers that are eligible to raise Foreign Direct Investments (FDIs) can also raise ECBs. Further, the following entities are also allowed to raise ECBs:
Further, if the ECBs are to be raised in INR, then the following entities are also allowed to raise ECBs apart from the above:
Registered entities that are engaged in microfinance activities. This includes registered not-for-profit organizations, non-government organizations, registered trusts, societies, or cooperative societies.
3.) Recognized Lenders: ECBs should be raised from recognized lenders. The lender should be a resident of the FATF or IOSCO-compliant country, including that at the date of transferring ECB. Further, the following lenders shall also be considered as the recognized lenders:
4.) Minimum Average Maturity Period (MAMP): Another important external commercial borrowing regulation is the MAMP. The MAMP for the ECBs shall be 3 years. Further, put or call options shall not be exercised before the completion of the MAMP. However, there are different MAMPs prescribed for certain specific categories that may range from 1 year to as long as 10 years.
5.) Negative List For ECBs: Certain sectors have been included in the negative list. This implies that the funds raised through ECBs cannot be utilized in these sectors. This includes the following:
6.) Change of Currency: In case the ECBs have been raised in foreign currency, then the ECBs can be freely converted from one freely convertible foreign currency to another freely convertible foreign currency. However, if the ECBs are raised in INR, then it is not allowed to convert the ECBs to any freely convertible foreign currency.
If an entity raises ECBs, then it shall ensure the following ECB compliances:
Particulars |
Applicable Forms |
Period |
Allotment of Loan Registration Number (LRN) for both automatic and approval route |
Form-83 |
Unless the LRN is obtained, the loan amount cannot be drawn. |
Monthly ECB return |
Form ECB-2 |
Within 7 days after the end of the month |
Application for ECB under approval route |
Form ECB |
When ECB is intended to be raised under the approval route |
Full conversion of ECB into equity |
Form FC-GPR |
Within 7 days after the end of the month |
Partial conversion of ECB into equity |
Form FC-GPR for the portion converted into equity. For the remaining portion, Form ECB-2 shall be filed. |
|
For modifications or changes in the following:
|
Form 83 |
When the changes take place |
Following was a complete guide to the ECB regulations and rules in India. In case you are willing to raise external commercial borrowings, then it is important to know all the ECB regulations and compliances to avoid legal complications. For more information about ECB regulations and rules, feel free to contact the ASC Group.
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