RBI eases external commercial borrowing norms, lifts sector-wise caps
17 January 2019
The Reserve Bank of India (RBI) has issued revised regulations for external commercial borrowings (ECB) to allow all eligible borrowers to raise overseas loans up to $750 million or equivalent per financial year under the automatic route.
RBI also expanded the list of eligible borrowers as part of the on-going efforts at rationalising multiple regulations framed under FEMA 1999 over a period of time.
Accordingly RBI has consolidated the regulations governing all types of borrowing and lending transactions between a person resident in India and a person resident outside India, both in foreign currency and Indian rupee.
Under the expanded list of eligible borrowers, all entities eligible to receive foreign direct investment can borrow under the ECB framework.
Any entity who is a resident of a country which is compliant with FATF (Financial Action Task Force) or IOSCO (International Organisation of Securities Commissions) will be treated as a recognised lender. This change increases the lending options and allows various new lenders in ECB space while strengthening the framework for anti-money laundering and countering of financing of terrorism.
The minimum average maturity period (MAMP) has been kept at 3 years for all ECBs, irrespective of the amount of borrowing in lieu of various layers of MAMPs as at present, except the borrowers specifically permitted in the circular to borrow for a shorter period.
The framework allows manufacturing companies to raise up to $50 million per financial year with a maturity period of one year.
Further, if the ECB is raised from a foreign equity holder and utilised for working capital, general corporate purposes or repayment of rupee loans, the maturity period will be five years.
All eligible borrowers can now raise ECBs up to $750 million or equivalent per financial year under the automatic route replacing the existing sector wise limits.
To curb volatility in the forex market arising out of dollar demand for crude oil purchases, the framework provides a special dispensation to public sector oil marketing companies. It allows them to raise ECB, with an overall ceiling of $10 billion, for working capital purposes with a minimum average maturity period (MAMP) of three years under the automatic route without mandatory hedging and individual limit requirements.
Additionally, port trusts, units in SEZs, SIDBI, Exim Bank and registered entities engaged in microfinance activities can also borrow under this framework.
Introduction of late submission fee for delay in prescribed reporting under the ECB framework to obviate the need for compounding these contraventions.