External Commercial Borrowings are commercial loans widely used by eligible resident entities who raise ECBs from recognised non-resident entities. ECBs should adhere to the criteria like minimum maturity period, maximum all-in-cost ceiling, permitted and non-permitted end-uses, etc. ECBs are governed by the Foreign Exchange Management Act (FEMA) Notification No. 3R & 8.

Draw-down with respect to an ECB is possible only after getting a Loan Registration Number (LRN) from the Reserve Bank. Changes in ECB specifications, in agreement with the ECB norms, should be reported to the RBI at the earliest by way of Revised Form ECB. In any case, the reporting should be made not later than 7 days from the changes effected. Also, the changes should be mentioned explicitly in the communication while submitting Revised Form ECB.

You can raise ECB in INR or any freely convertible Foreign Currency. ECBs can be raised under the automatic route as well as the approval route, under the ECB framework.

Under Automatic Route, the AD Category-I Bank examines the case and gives the approval. Entities wanting to raise ECB under the automatic route may approach an AD Category-I Bank with their proposal along with a duly filled Form ECB. Post approval by AD Category-I Bank, the application along with Form ECB is sent to RBI for issuance of LRN.

Under Approval Route, prospective borrowers send in their requests to the RBI through their AD Category-I Banks for examination. Such cases are considered based on macroeconomic situation and merits of the specific proposals, keeping in view the overall guidelines.

AD banks should ensure that persons resident in India do not have any exposure to borrowings by eligible entities under this framework either directly or indirectly except foreign branches/ subsidiaries of Indian banks abroad or any other permitted entities. Further, establishing borrowing structures/modalities which contravene the guidelines shall render themselves liable for penal action as prescribed under FEMA.,

All ECBs can be raised under the automatic route if they conform to the parameters prescribed under this framework. For approval route cases, the borrowers may approach the RBI with an application in prescribed format (Form ECB – Annex I) for examination through their AD Category I bank. Such cases shall be considered keeping in view the overall guidelines, macroeconomic situation and merits of the specific proposals. ECB proposals received in the Reserve Bank above certain threshold limit (refixed from time to time) would be placed before the Empowered Committee set up by the Reserve Bank. The Empowered Committee will have external as well as internal members and the Reserve Bank will take a final decision in the cases taking into account recommendation of the Empowered Committee. Entities desirous to raise ECB under the automatic route may approach an AD Category I bank with their proposal along with duly filled in Form ECB.

Borrowings under ECB Framework are subject to following reporting requirements apart from any other specific reporting required under the framework:

Any borrower, who is otherwise in compliance of ECB guidelines, can regularize the delay in reporting of drawdown of ECB proceeds before obtaining LRN or delay in submission of Form ECB 2 returns, by payment of late submission fees as detailed in the following matrix:

Conversion of ECB into equity: Conversion of ECBs, including those which are matured but unpaid, into equity is permitted subject to the following conditions:

i. The activity of the borrowing company is covered under the automatic route for FDI or Government approval is received, wherever applicable, for foreign equity participation as per extant FDI policy.

ii. The conversion, which should be with the lender’s consent and without any additional cost, should not result in contravention of eligibility and breach of applicable sector cap on the foreign equity holding under FDI policy;

iii. Applicable pricing guidelines for shares are complied with;

iv. In case of partial or full conversion of ECB into equity, the reporting to the Reserve Bank will be as under:

1. For partial conversion, the converted portion is to be reported in Form FC-GPR prescribed for reporting of FDI flows, while monthly reporting to DSIM in Form ECB 2 Return will be with suitable remarks, viz., "ECB partially converted to equity".

2. For full conversion, the entire portion is to be reported in Form FC-GPR, while reporting to DSIM in Form ECB 2 Return should be done with remarks “ECB fully converted to equity”. Subsequent filing of Form ECB 2 Return is not required.

3. For conversion of ECB into equity in phases, reporting through Form FC-GPR and Form ECB 2 Return will also be in phases.

v. If the borrower concerned has availed of other credit facilities from the Indian banking system, including foreign branches/subsidiaries of Indian banks, the applicable prudential guidelines issued by the Department of Banking Regulation of Reserve Bank, including guidelines on restructuring are complied with;

vi. Consent of other lenders, if any, to the same borrower is available or atleast information regarding conversions is exchanged with other lenders of the borrower.

vii. For conversion of ECB dues into equity, the exchange rate prevailing on the date of the agreement between the parties concerned for such conversion or any lesser rate can be applied with a mutual agreement with the ECB lender. It may be noted that the fair value of the equity shares to be issued shall be worked out with reference to the date of conversion only.

he primary responsibility for ensuring that the borrowing is in compliance with the applicable guidelines is that of the borrower concerned. Any contravention of the applicable provisions of ECB guidelines will invite penal action under the FEMA. The designated AD Category I bank is also expected to ensure compliance with applicable ECB guidelines by their constituents.

Note: 

As LLPs are not eligible to receive FDI, they cannot raise ECBs.

When a foreign director gives a loan to an Indian company in which they are also a director, it may be considered External Commercial Borrowing (ECB) under the guidelines and regulations set by the Reserve Bank of India (RBI). ECB refers to borrowing funds from non-resident entities by eligible Indian borrowers. basket random

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