ECB Regulations and Processes Quiz
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Questions and Answers

What must an entity seeking to raise ECB under the automatic route do first?

  • Obtain approval from the Empowered Committee
  • Approach an AD Category I bank with their proposal (correct)
  • Report actual transactions through Form ECB 2 Return
  • Submit copies of loan agreements to the Reserve Bank

    • What is required to obtain a Loan Registration Number (LRN)?

  • Approval from the Executive Committee
  • Submission of revised Form ECB
  • Duly certified Form ECB submitted in duplicate (correct)
  • Copies of the loan agreement

    • What does 'all-in-cost' include?

  • Only the swap cost and spread
  • Only the rate of interest and commitment fees
  • Rate of interest, commitment fees, and withholding tax
  • Rate of interest, other fees, and charges, but excludes commitment fees (correct)

    • What must prospective borrowers do under the approval route?

    <p>Request examination through their Authorised Dealers</p> Signup and view all the answers

    When should changes in ECB terms and conditions be reported to the DSIM?

    <p>Immediately after changes are agreed upon, within 7 days</p> Signup and view all the answers

    What is the purpose of the monthly reporting through Form ECB 2 Return?

    <p>To report actual ECB transactions</p> Signup and view all the answers

    What is the role of the Authorised Dealer Category-I (AD Category-I) banks in the automatic route?

    <p>They examine cases under the automatic route</p> Signup and view all the answers

    What information must be included when submitting revised Form ECB?

    <p>Changes made to ECB parameters</p> Signup and view all the answers

    Which interbank rate is referred to as the benchmark rate for Foreign Currency ECB/TC?

    <p>Any widely accepted interbank rate</p> Signup and view all the answers

    Which statement about the designated Authorised Dealer Category-I Bank is correct?

    <p>It monitors ECB/TC transactions and meets reporting requirements.</p> Signup and view all the answers

    Which body ultimately makes the final decision on ECB proposals above a certain threshold?

    <p>The Reserve Bank</p> Signup and view all the answers

    What is the consequence of late submission of ECB reporting?

    <p>A penalty fee may be incurred</p> Signup and view all the answers

    What is not included in the all-in-cost for ECB/TC?

    <p>Withholding tax payable in INR</p> Signup and view all the answers

    What is not required to be submitted to the Reserve Bank when raising an ECB?

    <p>Copies of loan agreement</p> Signup and view all the answers

    What are the expenses limit for FCCBs according to the all-in-cost?

    <p>4% of the issue size</p> Signup and view all the answers

    Which of the following describes the automatic route for ECB/TC?

    <p>Cases are examined by Authorised Dealer Category-I banks</p> Signup and view all the answers

    What is the maximum tenure for an ECB raised for working capital or general corporate purposes?

    <p>10 years</p> Signup and view all the answers

    For how long can ECBs raised for repayment of domestically availed Rupee loans for capital expenditure last?

    <p>7 years</p> Signup and view all the answers

    Which of the following statements is true regarding the sources of ECB funding?

    <p>ECBs cannot be raised from foreign branches or subsidiaries of Indian banks.</p> Signup and view all the answers

    What is the ceiling for the all-in-cost of new ECBs?

    <p>Benchmark Rate plus 500 bps</p> Signup and view all the answers

    What is the temporary increase in the all-in-cost ceiling for ECBs raised until December 31, 2022?

    <p>100 bps</p> Signup and view all the answers

    What is the minimum tenure for ECBs raised for general corporate purposes when on-lending by NBFCs?

    <p>10 years</p> Signup and view all the answers

    What is the benchmark rate plus spread for existing ECBs linked to LIBOR after changes were made?

    <p>Benchmark Rate plus 550 bps</p> Signup and view all the answers

    What duration is specified for ECBs raised for repayment of Rupee loans for purposes other than capital expenditure?

    <p>10 years</p> Signup and view all the answers

    What is included in the calculation of the ECB liability-equity ratio?

    <p>Outstanding amounts of all ECB and proposed ones</p> Signup and view all the answers

    Which equity components are relevant for the ECB liability-equity ratio calculation?

    <p>Paid-up capital and free reserves, including foreign currency share premium</p> Signup and view all the answers

    Which of the following describes a FATF compliant country?

    <p>A country that is a member of the FATF or its regional bodies and has no strategic deficiencies</p> Signup and view all the answers

    What characterizes Foreign Currency Convertible Bonds (FCCBs)?

    <p>They refer to foreign currency denominated instruments without warrants</p> Signup and view all the answers

    Which is true about Foreign Currency Exchangeable Bonds (FCEBs)?

    <p>They are issued following specific schemes for foreign currency bonds</p> Signup and view all the answers

    When calculating the ECB liability-equity ratio, what should be considered if there are multiple foreign equity holders?

    <p>The portion of the share premium from lenders concerned</p> Signup and view all the answers

    What is a requirement for the issuance of FCCBs?

    <p>They must comply with the FCCB and Ordinary Shares Scheme regulations</p> Signup and view all the answers

    What must a jurisdiction do to avoid being listed by the FATF?

    <p>Establish a comprehensive financial compliance mechanism</p> Signup and view all the answers

    What is a key restriction regarding the sale of immovable assets during enforcement of a charge?

    <p>The assets can only be sold to a resident in India.</p> Signup and view all the answers

    Which of the following assets can be pledged as security for External Commercial Borrowing (ECB)?

    <p>Shares of domestic associate companies.</p> Signup and view all the answers

    What must be obtained to take encumbered movable assets out of the country?

    <p>A No Objection Certificate from domestic lenders.</p> Signup and view all the answers

    During the invocation of a pledge, what policy must the transfer of financial securities comply with?

    <p>The sectoral cap and pricing provisions.</p> Signup and view all the answers

    What is the primary limitation on the lender's claim during the enforcement of a charge on movable assets?

    <p>It is restricted to the outstanding claim against the ECB.</p> Signup and view all the answers

    Which type of accounts can be used as security for ECB as per the current regulations?

    <p>Rupee accounts and cash equivalents.</p> Signup and view all the answers

    What must happen to the sale proceeds from the sale of immovable assets for ECB repayment?

    <p>They must be repatriated to settle outstanding ECB.</p> Signup and view all the answers

    What type of financial instruments can be pledged as security for ECB?

    <p>Bonds, debentures, and mutual fund units.</p> Signup and view all the answers

    What is the minimum average maturity period for ECB raised by Startups?

    <p>3 years</p> Signup and view all the answers

    Which of the following can be a recognized lender for Startups under the ECB framework?

    <p>Residents of FATF compliant countries</p> Signup and view all the answers

    What is the maximum borrowing limit for each Startup per financial year?

    <p>USD 3 million</p> Signup and view all the answers

    Which of the following is NOT an eligible form of borrowing for Startups under the ECB framework?

    <p>Corporate bonds</p> Signup and view all the answers

    What type of assets can be used as security under the ECB for Startups?

    <p>Movable and immovable assets, including intellectual property</p> Signup and view all the answers

    Which of the following statements about the end uses of the funding is accurate?

    <p>Expenditure can be for any purpose related to the business.</p> Signup and view all the answers

    The choice of security to be provided to the lender is determined by whom?

    <p>The borrowing entity</p> Signup and view all the answers

    Which condition applies to the conversion of borrowed funds into equity for Startups?

    <p>It is freely permitted under applicable regulations.</p> Signup and view all the answers

    Study Notes

    Master Direction - External Commercial Borrowings, Trade Credits and Structured Obligations

    • Transactions related to External Commercial Borrowings (ECB) and Trade Credits (TC) are governed by the Foreign Exchange Management Act (FEMA), 1999, section 6 (sub-section 2).
    • FEMA regulations include:
      • Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 (amended).
      • Foreign Exchange Management (Guarantees) Regulations, 2000 (amended).
    • Reserve Bank of India (RBI) issues directions to Authorized Persons under FEMA, section 11, detailing procedures for conducting foreign exchange transactions.
    • This Master Direction supersedes earlier directions dated January 1, 2016 (and subsequent amendments).
    • Reporting instructions are outlined in a separate appendix.
    • RBI may issue further directions to Authorised Persons through circulars, or amend the Master Direction.
    • This Master Direction is issued under FEMA sections 10(4) and 11(1).
    • These provisions do not prejudice any permissions/approvals required under other laws.

    Important Terms

    • All-in-Cost: Includes interest, fees, expenses, guarantees, and ECA charges (excluding withholding tax), but not commitment fees. For fixed rate loans, swap cost plus spread shouldn't exceed the floating rate plus applicable spread.
    • Approval route: Borrowers submit requests through their Authorised Dealer (AD) Banks to RBI for examination.
    • Authorised Dealer (AD): Person authorized as an AD per FEMA section 10(1).
    • Benchmark rate: Widely accepted interbank rate or alternative reference rate (ARR), applicable to borrowing currency; in INR, prevailing yield of Government of India securities.
    • Designated Authorised Dealer Category I (AD Category I) Bank: The branch designated by an ECB/TC borrower to meet reporting requirements.
    • ECB (External Commercial Borrowing) liability-Equity ratio: The ratio of outstanding ECB amounts (excluding INR denominated ECBs) and proposed ECBs to equity, which includes paid-up capital, free reserves, and share premium.
    • Foreign Currency Convertible Bonds (FCCBs): Foreign currency instruments convertible into equity.
    • Foreign currency Exchangeable Bonds (FCEBs): Foreign currency securities exchangeable into the equity shares of another entity.
    • IOSCO Compliant Country: Countries whose securities regulator are signatories to the IOSCO's Multilateral Memorandum of Understanding (MOU) or other bilateral agreements with SEBI.
    • Important terms including relevant details about various related activities.
    • Late Submission Fee (LSF): Regulated fees for delays in reporting, applicable to borrowers compliant with ECB guidelines.
    • MAMP (Minimum Average Maturity Period): Set period for borrowing transactions.
    • Person Resident in India: Defined in FEMA, section 2(v).
    • Real Estate Activities: Buying, selling, and renting commercial & residential properties.
    • Special Economic Zone (SEZ) & Free Trade Warehousing Zone: Defined as per the Special Economic Zones Act, 2005.
    • Untraceable Entity: Entity with no response from the auditor(s)/director(s)/promoter(s) for at least two quarters.
    • Automatic Route: Cases examined by Authorised Dealer banks category I.

    Reporting Requirements

    • Monthly reporting of ECB transactions through Form ECB 2 through AD Category I banks.
    • Reporting changes in ECB terms and conditions within 7 days of change.
    • Loan Registration Number (LRN) must be obtained from RBI prior to ECB disbursement.
    • Borrowers must conform to prescribed formats and deadlines.
    • Reporting procedures vary for different circumstances (e.g., untraceable entities, etc.).

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    Related Documents

    RBI Master Direction No. 5/2018-19 PDF

    Description

    Test your knowledge on the regulations and procedures surrounding External Commercial Borrowings (ECB). This quiz covers topics such as the automatic route, Loan Registration Number, and reporting requirements. Perfect for finance students and professionals looking to deepen their understanding of ECB processes.

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