RBI hikes ECB limit to $3 billion, relaxes norms

The Reserve Bank of India (RBI) today announced an increase in the maximum amount of external commercial borrowings (ECB) for domestic firms to $3 billion, in a bid to increase foreign fund flows into the country.

ECBs are commercial loans contracted abroad in the form of bank loans, buyers' credit, suppliers' credit or securitised instruments with a minimum average maturity of three years.

RBI has enhanced the maximum permissible limit of ECB that can be availed of to 75 per cent of the average foreign exchange earnings realised during the immediate past three financial years, or 50 per cent of the highest foreign exchange earnings realised in any of the immediate past three financial years, whichever is higher.

Under the extant guidelines, the maximum permissible ECB that can be availed of by an individual company under the scheme was limited to 50 per cent of the average annual export earnings realised during the past three financial years.

In case of special purpose vehicles (SPVs), which have completed at least one year of existence from the date of incorporation and do not have sufficient track record/past performance for three financial years, the maximum permissible ECB that can be availed of will be limited to 50 per cent of the annual export earnings realised during the past financial year.

The maximum ECB that can be availed of by an individual company or group, as a whole, under this scheme will be restricted to $3 billion, RBI said.

Also, RBI said, bridge finance for infrastructure sector companies will be replaced with a long-term ECB that complies with all the extant ECB norms.

Prior approval have to be sought from the Reserve Bank for replacing the bridge finance with a long term ECB.

Refinancing of such bridge finance (if in the nature of buyers'/suppliers' credit) availed of, with an ECB under the automatic route will be allowed subject to the following conditions:

• The buyers'/suppliers' credit is refinanced through an ECB before the maximum permissible period of trade credit;
  
• The authorized dealer evidences the import of capital goods by verifying the bill of entry;
  
• The buyers'/suppliers' credit availed of is compliant with the extant guidelines on trade credit and the goods imported conform to the DGFT policy on imports; and
  
• The proposed ECB is compliant with all the other extant guidelines relating to availment of ECB.

The borrowers will have to approach the Reserve Bank under the approval route only at the time of availing of bridge finance, which will be examined subject to conditions.

The designated authorised dealer banks should monitor the end-use of funds and banks in India will not be permitted to provide any form of guarantees for the ECB. All other conditions of ECB, such as eligible borrower, recognised lender, all- in-cost, average maturity, end-use, maximum permissible ECB per financial year under the automatic route, prepayment, refinancing of existing ECB and reporting arrangements will remain unchanged and should be complied with, RBI said.

The amended ECB policy will come into force with immediate effect and is subject to review, it added.