The RBI has recently notified the revised ECB framework with an aim to make the ECB regime more liberal, with most ECBs now coming under the automatic route, fewer restrictions on end use, higher all-in-cost ceiling to facilitate viable and sustainable long term foreign currency borrowings for Indian borrowers.
In relation to rupee denominated ECBs, the revised ECB framework has adopted a more liberal regime where the currency risk is borne by the lender. Earlier, RBI had issued detailed guidelines for issuing Indian rupee denominated bonds overseas. Under the revised ECB framework, Indian rupee denominated ECBs have also been brought in line with the circular dealing with rupee denominated bonds.
The RBI has expanded the list of eligible ECB lenders to include foreign insurance companies, pension funds and sovereign wealth funds. Under the revised framework, borrowers may avail medium term foreign currency denominated ECB with minimum average maturity of 3-5 years, long term foreign currency denominated ECB with minimum average maturity of 10 years and Indian rupee denominated ECB with minimum average maturity of 3-5 years. Overseas branches / subsidiaries of Indian banks have been forbidden from lending to Indian borrowers as far as long term foreign currency denominated ECB and medium term Indian rupee denominated ECB loans are concerned.
The revised framework allows change of currency of ECB from one convertible foreign currency to any other convertible foreign currency, including the Indian rupee. However, change of currency from INR to any foreign currency is not permitted. The revised framework has also narrowed down the list of activities for which ECB cannot be availed to just five, viz. investment in real estate activities, capital markets, use of proceeds for equity investment domestically, on-lending to other entities with any of the above objectives and purchase of land.
The revised framework not only helps corporate India avail foreign loans in an easier manner, there are also fewer regulatory hurdles and reporting requirements that need to be complied with by these entities. The onus on compliance with the revised framework has been put on the borrowers themselves with the Authorized Dealer banks acting as watchdogs to ensure that the regulations are complied with. Corporate India is sure to embrace this initiative with open arms.