a. Eligible borrowers can avail ECB under
approval route from their direct foreign
equity holder company only with a
minimum average maturity of 7 years for
general corporate purposes (which includes
working capital).
b. The lender should be holding a minimum
paid up capital of 25%.
c. The repayment of such loan would only
commence after the completion of 7 years.
No prepayment is allowed.
d. The use of such loan should not violate
any guidelines issued by the RBI restricting
the use of ECB by the companies.
2. Refinancing: the new RBI guidelines have also
eased the norms of refinancing by allowing banks to
approve even those ECBs where the average
maturity period of the same is more than the
residual maturity of existing loans.
This is subject to the following restrictions:
a. Both the existing and fresh ECB should be
in compliance with the RBI guidelines.
b. All-in-cost of existing ECB should be
more than the all-in-cost of the new ECB.
c. Consent of the existing lender should be
available for the approval for fresh ECB.
d. Such refinancing should only be
undertaken before the maturity of the
existing ECB.
The RBI has further prescribed certain conditions
that need to be satisfied in order to get approval of
changes/ modification of drawndown/repayment
schedule of ECB already availed by the Authorised
Dealer Bank. These are applicable to both
automatic and approval routes.
a. After the re-schedulement, the all-in-cost
and average maturity period should be in
compliance with the applicable guidelines.
There should not be an increase in the rate
of interest or additional costs.
b. The said re-schedulement is only allowed
once.
c. Re-schedulement is only allowed before
the maturity of the ECB.
d. Every procedure followed should be in
accordance with the RBI guidelines and
procedures prescribed for the same.
CONCLUSION
The objective of such regulations and control over
the ECBs is on one hand to provide flexibility to the
Indian Companies with respect to the borrowings
from external market and on the other hand, to
maintain a prudent limit on such borrowings. This
is necessary to avoid an unnecessarily huge
financial base to the companies which may lead to
them taking uncalculated risks.
ECB has proved to be a very effective mechanism for
the companies to raise funds for themselves but in
the present market conditions where the value of
rupee is constantly deteriorating, raising ECB is not
only risky but has also proved to be difficult for the
companies. This seems to be the main reason for the
new relaxed guidelines by the Reserve Bank of India
for access to ECBs. But the Indian corporates need
to maint Z[