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External Commercial Borrowings (ECB) and Trade Credits for Imports 1 Ashit Hegde.

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Presentation on theme: "External Commercial Borrowings (ECB) and Trade Credits for Imports 1 Ashit Hegde."— Presentation transcript:

1 External Commercial Borrowings (ECB) and Trade Credits for Imports 1 Ashit Hegde

2 ECBs refer to commercial Loans availed from Non- Resident recognised lenders with average maturity period of more than 3 years. ECBs include FCCB and Preference Shares. Automatic Route Approval Route ECBs for Industrial Sector,All Others Infrastructure Sector and service sector. 2 Ashit Hegde

3 Eligible Borrowers Corporates, NBFCs NBFCs - IFC and AFC Micro Finance Companies (MFIs) Recognised Lenders Banks and Financial Institutions(IFC, ADB etc) Export Credit Agencies Suppliers of Equipment and Collaborators Foreign Equity Holders 3 Ashit Hegde

4 Type of ActivityAmount (USD Million ) Hotels, Hospitals & Software 200 Other Corporates 750 MFIs 10 NBFC – IFC 75% of Owned Funds NBFC --- AFC 75 % of Owned Funds -- max. 200 4 Ashit Hegde

5 Minimum Average maturity Up to USD 20 Million 3 Years Up to USD 750 Million 5 years All in Cost Ceiling 3 - 5 Years6 Month LIBOR plus 350 basis points More than 5 Years 6 Month LIBOR plus 500 basis points Additionally, Commitment Fee,Prepayment Fees, and fees payable in INR may be paid. This ceiling will be in force up to 30 th June, 2014 and will be reviewed thereafter. 5 Ashit Hegde

6 End Use Not Permitted For Onlending For Investment in Capital Market For investing in land For acquiring a company In India For Real Estate Sector For Working Capital and Repayment of existing Rupee loans Note: For NBFCs – AFC some relaxations allowed in July 13 6 Ashit Hegde

7 Guarantees to Obtain ECBs Issuance of Guarantees, Standby LCs, LOCs, LOUs by Banks or NBFCs to secure ECBs is not permitted. (For SMEs and Textile Industry RBI may consider under Approval Route) Security Banks have been authorized to issue “NOC” favouring Lenders to create charge on immovable assets or for Corporate Guarantee. 7 Ashit Hegde

8 Loan Registration Number (LRN) LRN must be obtained from RBI before drawdown. Redemption of FCCBs Raising of Fresh ECBs/FCCB s for redemption of FCCB is permitted. Credit Enhancement - by Non–Resident eligible entities for domestic capital market instruments like bonds, debentures is permitted. Guarantee Fees of max. 2% of the principal amt is permitted. 8 Ashit Hegde

9 Conversion of ECB into equity - Permitted Rescheduling of ECB/Refinancing -Permitted but at lower all-in-cost Changes in drawdown /repayment etc -Banks have been authorized to approve these changes Elongation/Rollover -Needs prior RBI approval Prepayment - Permitted subject to Minimum average maturity period 9 Ashit Hegde

10 Reporting requirements for ECB I. Form no. 83 a) Form 83 has to be submitted by the borrower certified by CA/CS to A.D. Banks within 7 days of signing the Loan Agreement. b) A.D. Bank will ensure and certify (Part F) conformity with extant ECB guidelines and forward to RBI, Mumbai for allotment of Loan Registration Number (LRN). 10 Ashit Hegde

11 II. ECB-2 This statement contains all details of ECB transactions (like drawdown, parking funds abroad, repayment etc) during the month. a)Borrower has to submit this every month certified by CA/CS within 7 days of close of month to the A.D. Banks. b)The bank will verify and certify the details and forward the same to RBI, Mumbai. 11 Ashit Hegde

12 Computation of Average Maturity Average Maturity = Balance of ECB * No. of Days with the Borrower Loan amount * 360 E.g. 1)0.750* 24 = 0.025 2.000 * 360 E.g. 2) Loan - First disbursement on 11/5/007 Final Repayment on 27/6/2012 In this case, even though the total period of the loan is about 5 years Average Maturity could be 3.2851 years 12 Ashit Hegde

13 Trade Credits for Imports Trade Credits refer to credits extended by Overseas supplier or Overseas Bank for Imports into India for periods less than 3 years. Supplier’s credit  Refers to credit extended by supplier Buyers credit  Refers to credit arranged by the buyer from an overseas bank 13 Ashit Hegde

14 Amount and Maturity For Capital Goods – Up to USD 20 million per import transaction with maturity period of more than one year and up to 5 years. For Raw material – USD20 Million up to one year. No rollover/extension is permitted. 14 Ashit Hegde

15 All-in-Cost Ceiling- 6 months LIBOR + 350 basis points (This will be in force up to 30.06.2014. Will be reviewed thereafter) Guarantee- Issuance of guarantees/LOCs/LOUs / Standby LCs by banks favouring the supplier /Overseas Bank is permitted (up to 3 years only) Reporting Reporting has to be done by the Head Office or one Nodal Branch for the entire bank. Beginning from Sept 2013, quarterly statement of guarantees/LOCs issued has to be submitted to RBI on XBRL platform by 10 th of succeeding month. 15 Ashit Hegde

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