The key changes made to the External Commercial Borrowing Framework to give the necessary impetus to the infrastructure sector

The Reserve Bank of India (RBI) has on November 30, 2015 issued Notification No. RBI/2015 – 16/255 A.P. (DIR Series) Circular No. 32 (RBI ECB Circular), to bring into effect necessary changes made to the existing external commercial borrowings (ECB) framework in India, keeping in mind the emerging financing needs of the Indian resident entities and developments in the Indian economy. The RBI ECB Circular provides for the three routes for raising borrowings from recognised non – resident entities, comprising of: (i) medium term foreign currency denominated ECB with minimum average maturity (MAM) of three or five years (Option I); (ii) long term foreign currency denominated ECB with MAM of 10 years (Option II); and (iii) Indian rupees denominated ECB with MAM of three or five years (Option III).

Taking into account the critical needs of the infrastructure sector and its importance within the Indian economy, the RBI on March 30, 2016 made further revisions to the ECB framework in India under Notification No. RBI/2015 – 16/349 A.P. (DIR Series) Circular No. 56 (RBI ECB Revised Circular) providing for the following changes:

  1. Companies engaged in the infrastructure sector, holding companies and core investment companies (CICs) were eligible borrowers under Option II and Option III, while non – banking financial companies – infrastructure finance companies (NBFC – IFCs) and non – banking financial companies – asset finance companies (NBFC – AFCs) which were eligible borrowers only under Option III, under the RBI ECB Circular, have now been permitted as eligible borrowers under Option I, subject to MAM of five years and hundred percent hedging. The designated AD Category – 1 bank (AD Bank) has to verify that hundred percent hedging requirements have been complied with during the currency of the ECB and duly report it to the RBI through ECB 2 returns. Further, such borrowers should have a risk management policy approved by their board of directors.
  2. For the purposes of ECB specifically, the exploration, mining and refinery sub-sectors which do not form part of the extant Harmonized List of the Infrastructure Sector, as amended by the Government of India from time to time, have been permitted to raise ECBs as part of the infrastructure sector.
  3. With regards to permitted end – uses under the RBI ECB Circular, companies in the infrastructure sector can utilize the proceeds from such ECBs for all activities as permitted for Option I under the RBI ECB Revised Circular. NBFC – AFCs and NBFC – IFCs however are permitted to utilize ECB proceeds only for financing infrastructure while holding companies and CICs can use the ECB proceeds only for on – lending to infrastructure special purpose vehicles.
  4. For NBFC – AFCs, NBFC – IFCs, holding companies and CICs, the individual limit of borrowing for the automatic route of ECBs under the RBI ECB Revised Circular have been pegged at USD 750 Million in conformity with that of the companies in the infrastructure sector under the RBI ECB Circular.

The AD Bank may allow refinancing of ECBs issued under the RBI ECB Circular while ensuring that it is at lower all–in–cost and residual MAM is not reduced provided that they are not Foreign Currency Convertible Bonds (FCCBs) and Foreign Currency Exchangeable Bonds (FCEBs). It has also been clarified that investment in non – convertible debentures by registered foreign portfolio investors are excluded from the applicability of the ECB framework. Further, for FCCBs and FCEBs, the MAM is five years provided that the call and put option if any, is not exercised by such date. It has also been clarified that relating to forms of ECBs, all loans including loans from financial institutions are allowed and not just bank loans.

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