RBI announces relaxed norms for external commercial borrowings

31 Mar 2016

Reserve Bank of India (RBI) has announced revised guidelines for external commercial borrowings (ECB) in the light of the prevailing external funding sources, particularly for long term lending and the critical needs of infrastructure sector of the country.

The extant ECB guidelines have been reviewed in consultation with the government of India to make more entities eligible to raise overseas funds through ECBs.

Accordingly, companies in the infrastructure sector, non-banking finance companies-infrastructure finance companies (NBFC-IFCs), NBFCs-asset finance companies (NBFC-AFCs), holding companies and core investment companies (CICs) will also be eligible to raise ECB under Track I of the framework with minimum average maturity period of 5 years, subject to 100 per cent hedging.

Companies in the exploration, mining and refinery sector, which are not included in the harmonised list of infrastructure sector but were eligible to take ECB under the previous ECB framework will be deemed as infrastructure sector companies, and can access ECB as applicable to infrastructure sector, RBI said.

Companies in infrastructure sector should utilise the ECB proceeds raised under Track I for the end uses permitted for this.

NBFCs-IFCs and NBFCs-AFCs will, however, be allowed to raise ECB only for financing infrastructure.

Holding companies and CICs should use ECB proceeds only for on-lending to infrastructure special purpose vehicles (SPVs).

The individual limit of borrowing under the automatic route for such companies would be as applicable to the companies in the infrastructure sector (currently $750 million).

Companies in infrastructure sector, holding companies and CICs will continue to have the facility of raising ECB under Track II of the ECB framework subject to the conditionalities prescribed thereof.

However, to be eligible for ECB, the companies added under Track I should have a board approved risk management policy. Further, the designated authorized foreign exchange dealer banks should verify that 100 per cent hedging requirement is complied with during the currency of ECB and report the position to RBI through ECB 2 returns.

RBI further clarified that the designated banks may, under the powers delegated to them, allow refinancing of ECBs raised under the previous ECB framework, provided the refinancing is at lower all-in-cost, the borrower is eligible to raise ECB under the extant ECB framework and residual maturity is not reduced (ie, it is either maintained or elongated).

ECB framework is not applicable in respect of the investment in non-convertible debentures (NCDs) in India made by registered foreign portfolio investors (RFPIs).

The minimum average maturity of foreign currency convertible bonds (FCCBs)/ foreign currency exchangeable bonds (FCEBs) is 5 years irrespective of the amount of borrowing. Further, the call and put option, if any, for FCCBs are not exercisable prior to 5 years.

Only those NBFCs which are coming under the regulatory purview of the Reserve Bank are permitted to raise ECB. Further, under Track III, the NBFCs may raise ECBs for on-lending for any activities, including infrastructure, as permitted by the concerned regulatory department of RBI.

The provision regarding delegation of powers to designated banks is not applicable to FCCBs/FCEBs.