logo
logo
Sign in

Guide on External Commercial Borrowing (ECB) Regulation

avatar
Akshay Tiwari
Guide on External Commercial Borrowing (ECB) Regulation

External commercial borrowing (ECB) is the process of raising money from foreign sources for use in the domestic economy. This can take the form of loans, bonds, or other financial instruments. ECB can be an attractive option for businesses looking to raise capital, as it can provide access to cheaper financing than is available domestically. It can also help businesses to diversify their funding sources 


What is External Commercial Borrowing (ECB)?


External commercial borrowing (ECB) refers to commercial loans availed by Indian entities from foreign sources in order to meet their business requirements. The Reserve Bank of India (RBI) regulates External commercial borrowing through the Foreign Exchange Management Act, 1999 (FEMA). In order to ensure that the purpose for which the funds are being raised is in line with the country’s economic development, the RBI has prescribed certain end-use requirements for availing ECBs.


Reserve Bank of India allow following entities to avail external commercial borrowing facility:


  • Indian firms including companies, partnership firms, trusts, proprietorships etc. can avail ECB for their genuine business purposes.
  • All Indian banks including regional rural banks and local area banks can raise ECB under the approved scheme for augmenting their Tier-I capital.
  • Housing Finance Companies (HFCs), which are registered with National Housing Bank (NHB), can raise ECBs for on-lending for housing purposes within the RBI guidelines.
  • Non-Banking Financial Companies (NBFCs), which are registered with RBI, can raise ECBs for their on-lending activities within the RBI guidelines.


Benefits of External Commercial Borrowing Regulation


  • The end use of ECB proceeds is clearly defined and borrowers are required to utilise the funds only for the approved purpose.
  • It provides an investor with an additional avenue to raise finances at a relatively cheaper cost.
  • The ECB route helps the borrowers to reduce their dependence on the domestic market and also diversify their
  • The ECB regulations provide a framework for monitoring the utilisation of ECB proceeds and also ensure that the


In India, ECB can be raised from the following sources: 


  • Foreign commercial banks 
  • Overseas branches and subsidiaries of Indian banks 
  • Multilateral and regional financial institutions such as ADB, IFC, etc. 
  • Bilateral agencies such as AfDB, CDC, etc. 
  • Export credit agencies 
  • Suppliers of plant, machinery and equipment 
  • Foreign collaboration/shareholders 
  • Foreign equity holders in Indian companies 
  • Foreign institutional investors registered with SEBI 
  • Non-resident Indians (NRIs), overseas corporate bodies (OCBs), overseas trusts, and overseas individuals of Indian nationality or origin 


 ECB can be raised for the following purposes: 


  • Working capital purposes 
  • General corporate purposes 
  • Pre-payment or refinancing of rupee loans availed of from domestic sources 
  • Acquisition of shares/ equity stake in another Indian company under the approval route 
  • expenses towards setting up of a new project or extension/modernization of an existing project subject to the maximum project cost specified. 


In nutshell


ECB is defined as commercial borrowing in the form of bank loans, buyers’ credits, suppliers’ credits, securitized instruments, and commercial papers and notes raised by a resident entity in foreign currency from non-resident lenders. Till recently, commercial banks were the only source of external commercial borrowings (ECBs). ASC Group provides end-to end External commercial borrowing Regulation services. For more information about ECB regulations and rules, feel free to contact the ASC Group.


collect
0
avatar
Akshay Tiwari
guide
Zupyak is the world’s largest content marketing community, with over 400 000 members and 3 million articles. Explore and get your content discovered.
Read more