MANU/APDR/0011/2005

Department / Board:RBI APDIR(Series)

Circular No.: A.P.(DIR Series) Circular No. 5

Date: 01.08.2005

External Commercial Borrowings (ECB)

Attention of Authorised Dealers is invited to the A.P. (DIR Series) Circular No.40 dated April 25, 2005 and A.P. (DIR Series) Circular No.60 dated January 31, 2004 in connection with External Commercial Borrowings (ECB). A review of the ECB guidelines has been undertaken keeping in view the current macroeconomic situation, the experience gained so far by the Reserve Bank in administering the ECB policy and requests received from certain sectors.

2. Accordingly, it has been decided tto liberalise/modify the ECB hat NGOs engaged in micro finance activities may be permitted to raise ECB up to USD 5 million during a financial year for permitted end-use, under Automatic Route. Detailed guidelines on ECB for micro finance activities with necessary safeguards are set out below.

3. The concerns emanating from ECB for NGOs engaged in micro finance activities can be categorized in to four types: (i) whether the borrower is genuine. (ii) whether ECB funds are utilised for genuine purpose, (iii) credentials of the overseas lender of ECB and (iv) systemic implications of such ECB flows including the risks of foreign currency borrowing by such entities. The following framework addresses these issues. policy as indicated below:

i. ECB with minimum average maturity of 5 years by non-banking financial companies (NBFCs) from multilateral financial institutions, reputable regional financial institutions, official export credit agencies and international banks to finance import of infrastructure equipment for leasing to infrastructure projects would be considered by the Reserve Bank under the Approval Route;

ii. Foreign Currency Convertible Bonds (FCCB) by housing finance companies satisfying specific criteria would be considered by the Reserve Bank under the Approval Route;

iii. Minimum holding of equity by the foreign equity holder in the borrowers company (which would qualify the foreign equity holder as a recognised lender for ECB) has been clarified;

iv. Prepayment of ECB up to USD 200 million (as against the existing limit up to USD 100 million) may be allowed by Authorised Dealers without prior approval of RBI subject to compliance of applicable minimum average maturity period for the loan. Pre-payment of ECB for amounts exceeding USD 200 million would be considered by the Reserve Bank under the Approval Route.

v. Currently, domestic rupee denominated structured obligations are permitted by the Government of India to be credit enhanced by international banks/international financial institutions/joint venture partners. Such applications would henceforth be considered by the Reserve Bank under the Approval Route.

3. The amended ECB policy will come into force with immediate effect and is subject to review.

........