External Commercial Borrowing (ECB)

External Commercial Borrowings has complemented as an extended source of borrowings for Indian Companies, which were earlier restricted to domestic sources, and has filled the gap of limited long-term financing options available in the country. According to the data released by the Reserve Bank of India, the overseas fund raising by Indian Companies has gained momentum over the period.

What is ECB?

External Commercial Borrowings are commercial loans raised by eligible resident entities from recognized non-resident entities to facilitate the long-term funding requirements of Indian Companies. ECB should conform to regulatory parameters such as minimum maturity, permitted and non-permitted end-uses, maximum all-in-cost ceiling, etc. The parameters apply in totality and not on a standalone basis.

Regulatory Framework

Debt financing via External Commercial Borrowings (“ECB”) is regulated by the Reserve Bank of India (“RBI”). RBI reframed ECB provisions on 16^thJanuary, 2019 and introduced new guidelines with a liberalized outlook which have made the whole procedure and criteria associated with raising loan from foreign sources much simpler and convenient.

Salient features of ECB Framework (Master Direction – External Commercial Borrowings, Trade Credits and Structured Obligations) are listed below:

• Eligible Borrowers:  All the entities who are eligible to receive foreign direct investment can raise ECB.
• Amount:  All eligible borrowers can raise ECB up to USD 750 million or equivalent per financial year under the automatic route.
• Minimum Average Maturity Period (MAMP): ECB can be raised for MAMP of 3 years for all types of ECBs.

*However, ECB raised from foreign equity holder for specific purpose and by Manufacturing Sector Companies up to USD50 million or equivalent per financial year can have different MAMP.

• End Use (Negative List): ECB framework provides negative list, for which the ECB proceeds cannot be utilized, which are listed below:
  • Real estate activities;
  • Investment in capital markets;
  • Equity investment;
  • Working capital purposes, except from foreign equity holders;
  • General corporate purposes, except from foreign equity holders;
  • Repayment of Rupee loans, except from foreign equity holders; and
  • On-lending to entities for the above activities

RBI vide circular dated 30^th July, 2019 has provided relaxations related to end use restrictions wherein the corporates can raise ECB for working capital requirements (also from sources other than foreign equity holders), general corporate purposes and repayment of rupee loans availed domestically for capital expenditure and on lending by NBFC’s for above purposes has also been permitted based on a minimum prescribed MAMP.

• Recognized Lender: The lender should be resident of a Financial Action Task Force (“FATF”)or International Organisation of Securities Commissions (“IOSCO”)compliant country.

Provided that following shall also be considered as recognized lenders under ECB guidelines:

• • Multilateral and Regional Financial Institutions where India is a member country;
  • Individuals as lenders can only be permitted if they are foreign equity holders or for subscription to bonds/debentures listed abroad; and
  • Foreign branches / subsidiaries of Indian banks are permitted as recognized lenders only for FCY ECB (except FCCBs and FCEBs).
  • Currency: ECB can be raised in any freely convertible currency as well as in Indian Rupee (INR). The borrowing can be in the form of loans or non-convertible, optionally convertible or partially convertible preference shares/ debentures, securitized instruments, financial lease etc.

Are Startups eligible to raise ECB?

Reserve Bank of India vide its circular dated 16^th January, 2019 has opened doors of ECB for Startups.. AD Category-I Banks are permitted to allow recognized Startups to raise ECB under the automatic route, subject to adherence to RBI’s prescribed framework. You may refer to our blog on External Commercial Borrowings Facility for Startups to know about the ECB framework for startups.

For more information on External Commercial Borrowing (ECB), please visit

• External Commercial Borrowings: Simple Guidelines well received by Corporate India
• Reporting under New ECB Guidelines