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Capital Account Service - External Commercial Borrowings (ECB)

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.

ICICI Bank has a comprehensive set up in place for Capital Account Transactions. The experienced team at ICICI Bank offers you numerous services for smooth end-to-end processing of your ECB transactions. Leave all hassles of pre and post-transaction with us and watch your funds getting credited.

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.

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Frequently Asked Questions (FAQs)

What are External Commercial Borrowings (ECBs)?


External Commercial Borrowings are commercial loans raised by eligible resident entities from recognised non-resident entities.

ECBs should conform to factors like:

  • minimum maturity
  • permitted and non-permitted end uses
  • maximum all-in-cost ceiling, etc.

What are the forms of External Commercial Borrowings (ECBs)?


Different types of ECBs are as follows:

  1. Loans including bank loans
  2. Securitised instruments (such as floating rate notes, fixed-rate bonds, and non-convertible, partially convertible or optionally convertible preference shares/debentures)
  3. Trade Credits beyond 3 years 
  4. Foreign Currency Convertible Bonds (FCCBs)
  5. Financial Lease and 
  6. Foreign Currency Exchangeable Bonds (FCEB)

What is the concept of Foreign Equity Holder in External Commercial Borrowings (ECB) transaction?


Foreign Equity Holder means:

  • Direct foreign equity holder holding a minimum 25% equity in the borrowing company
  • Indirect foreign equity holder holding a minimum 51% equity in the borrowing company
  • Group company with a common overseas parent

What is the currency of borrowing in case of External Commercial Borrowings (ECBs)?


ECBs can be raised in Indian National Rupees (INR) or any other convertible currency. Any unit raising INR denominated ECB is not permitted to convert the liability of this ECB into liability of foreign currency in any manner or assume foreign currency risk in any way by entering into derivative contract or otherwise.

Are AD Category I banks permitted to allow the creation of charge on immovable assets, movable assets, financial securities in favour of overseas lender to secure External Commercial Borrowings (ECBs)?


Yes, AD Category I Banks are permitted to allow the creation of charge on immovable assets, movable assets, financial securities in favour of overseas lender to secure ECB to be raised or raised by the borrower after satisfying themselves that:

  1. the ECB complies with the existing ECB guidelines
  2. there exists a security clause in the Loan Agreement necessitating the ECB borrower to create a charge in favour of the overseas lender on immovable assets/movable assets/financial securities, and
  3. No Objection Certificate, as applicable from an existing lender in India has been obtained.

What is the procedure for applying for Loan Registration Number (LRN)?


Any draw-down in respect of an ECB, as well as payment of any fees/charges for raising an ECB, should happen only after obtaining the LRN from RBI. To get the LRN, borrowers are required to submit a duly certified Form ECB in duplicate that also contains the terms and conditions of ECB to the designated AD Category I Bank.

The AD Category-I Bank will send one copy to the Director, Balance of Payments Statistics Division, Department of Statistics and Information Management (DSIM), Reserve Bank of India, Bandra-Kurla Complex, Mumbai – 400 051.

How is reporting of actual transactions to be done?


The borrowers are required to report actual ECB transactions, correctly and fully, through duly certified Form ECB 2 through AD Category-I bank to DSIM as per the periodicity specified by the RBI. The Form ECB 2 should reach DSIM within seven working days from the close of month to which it relates. Changes, if any, in ECB parameters should also be incorporated in Form ECB 2 suitably.

Whether the restrictions in respect of the eligibility of borrowing entities also applicable to Startups?


No, any entity which is recognised as a Startup by the Central Government as on date of raising ECB, would be eligible to raise ECB, irrespective of its business activities.

What is the meaning of ‘all-in-cost’?


All-in-cost shall include the rate of interest, other fees, expenses, charges, guarantee fees, Export Credit Agency (ECA) charges, whether paid in foreign currency or INR but will not involve commitment fees and withholding tax payable in INR. In the case of fixed-rate loans, the swap cost plus spread should not be more than the floating rate plus the applicable spread.

Who are the eligible borrowers under External Commercial Borrowings (ECBs) framework?


Recognised lender/investor who is a resident of Financial Action Task Force (FATF) compliant country is permitted to lend while raising ECB by Startup. However, foreign branches or subsidiaries of Indian banks and overseas entities in which Indian entities have made overseas direct investment as per the existing Overseas Direct Investment Policy would not be considered as recognised lenders under this framework. Any person/entity which already is a foreign investor in the Startup is also allowed to lend.

Whether External Commercial Borrowings (ECBs) can be converted into equity for Startup?


The ECBs can be freely converted into equity subject to regulations applicable for foreign investment in Startups.

What is the maximum amount the Startups can borrow through ECBs?


The borrowing per Startup is limited to USD 3 million or equivalent per financial year either in Indian currency or any convertible foreign currency or combination of both.

 

What is External Commercial Borrowing (ECB)-2 Return?


The borrowers are required to report the actual ECB transactions by Form ECB 2 Return through the AD Category I Bank monthly within seven working days from the close of month to which it relates. Changes, if any, in ECB parameters should also be incorporated in Form ECB 2 Return.

How much Late Submission Fee (LSF) to be paid by client for delay in reporting of ECB-2?


Sr. No.Type of Return/FormPeriod of delayApplicable LSF
1 Form ECB 2 Up to 30 calender days from due date of submission  INR 5,000
2 Form ECB 2/Form ECB Up to three years from due date of submission/date of drawdown  INR 5,000 per year
3 Form ECB 2/Form ECB Beyond three years from due date of submission/date of drawdown INR 100,000 per year

Whether payment of Late Submission Fee (LSF) is compulsory for delay in reporting of ECB-2?


Yes, payment of LSF is compulsory for delay in reporting of ECB-2. Non-payment of LSF will be treated as a contravention of reporting provision and shall be subject to compounding or adjudication as provided in FEMA 1999 or regulations/rules framed thereunder.

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