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.
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.
Debt financing via External Commercial Borrowings (“ECB”) is regulated by the Reserve Bank of India (“RBI”). RBI reframed ECB provisions on 16thJanuary, 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:
*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.
RBI vide circular dated 30th 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.
Provided that following shall also be considered as recognized lenders under ECB guidelines:
Reserve Bank of India vide its circular dated 16th 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