New ECB Norms Lift Sector-wise Limits
·
$750mn per year under Auto Route
·
New Window for Oil Companies of $10bn
under Auto Route
·
Micro Finance, Ports, SIDBI/Exim Bank
Allow ECB
Allows $750 m/fiscal
under the automatic route; expands list of eligible borrowers
To further improve the
ease of doing business in India, the Reserve Bank of India has drawn up a new
external commercial borrowing (ECB) framework allowing all eligible borrowers
to raise up to $750 million per financial year under the automatic route,
replacing the existing sector-wise limits. The central bank has also expanded
the list of eligible borrowers and recognised
lenders.
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.
The list of borrowers has been expanded to include all entities eligible to
receive FDI.
Additionally, port
trusts, units in SEZs, SIDBI, Exim Bank and registered entities engaged in
microfinance activities can also borrow under this framework.
Maturity period
While the minimum
maturity period for the ECB will be three years, 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. This probably has been done to encourage foreign
shareholders, especially in Indian airlines, to support their Indian partners.
This could help Jet Airways deal with its current financial crisis.
As per the policy,
call and put option, if any, cannot be exercised prior to the completion of the
minimum average maturity.
RBI announces the New External
Commercial Borrowings (ECB) Framework
[RBI Press Release dated January 16,
2019]
As part of the on-going efforts at rationalising multiple regulations framed under FEMA 1999
over a period of time, 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, have been
consolidated and the Revised Regulation FEMA 3 R/2018 has been notified by the
Government of India on December 17, 2018.
In line with the above revised
regulation, it has now been decided, in consultation with the Government of
India, to rationalise the extant framework for ECB
and Rupee denominated bonds to further improve the ease of doing business. An
A. P. (DIR Series) Circular on the new ECB policy has been issued today
incorporating the new framework. Major liberalisation/rationalisation in the new framework are as under:
i) Tracks
I and II under the existing framework are merged as “Foreign Currency
denominated ECB” and Track III and Rupee Denominated Bonds framework are
combined as “Rupee Denominated ECB” to replace the current four-tiered
structure. The framework is instrument-neutral.
ii) The list of eligible borrowers has been
expanded. All entities eligible to receive foreign direct investment can borrow
under the ECB framework.
iii) Any entity who is a resident of a country
which is FATF or IOSCO compliant will be treated as a recognised
lender. This change increases the lending options and allows various new
lenders in ECB space while strengthening the AML/CFT framework.
iv) 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.
v) All eligible borrowers can now raise ECBs up
to USD 750 million or equivalent per financial year under the automatic route
replacing the existing sector wise limits.
vi) Introduction of late submission fee for delay in
prescribed reporting under the ECB framework to obviate the need for
compounding these contraventions.