ECB Regulations and Processes Quiz

The total cost of borrowing, including interest, fees, expenses, and charges, but excluding commitment fees and withholding tax payable in INR.

A method of raising ECB/TC where the loan is approved automatically, without requiring authorization from the Reserve Bank.

A widely accepted interbank rate used as the base interest rate for FCY ECB/TC. It is often based on a 6-month tenor.

A person or organization authorized by the Reserve Bank of India to deal in foreign exchange, including handling ECB/TC transactions.

A route for raising ECB/TC that requires approval from the Reserve Bank of India. The borrower must submit a request through their AD Bank.

The bank branch designated by the ECB/TC borrower for managing loan reporting, obtaining required approvals, and monitoring transactions. It has specific roles and responsibilities.

A type of loan where the borrower receives funds in a foreign currency, often for a specified period.

External Commercial Borrowings and Trade Credits (ECB/TC), a method used by Indian companies to raise foreign currency loans for investment.

A ratio used to measure a company's foreign currency debt (ECB) compared to its equity held by foreign investors. It's calculated by dividing the total outstanding ECB amount (excluding INR-denominated ECBs) by the paid-up capital and free reserves in foreign currency.

A country that is a member of the Financial Action Task Force (FATF) or a FATF-Style Regional Body. They must also not be identified by FATF as having deficiencies in anti-money laundering or combating financing terrorism.

Foreign currency denominated bonds that can be exchanged for shares of a different specified company, issued under the Issue of Foreign Currency Exchangeable Bonds Scheme, 2008.

External Commercial Borrowings (ECB) raised by Indian companies from foreign equity holders for 5 years, used for general corporate purposes, working capital, or repaying rupee loans.

External Commercial Borrowings (ECB) raised for 10 years by Indian companies from foreign equity holders for working capital or general corporate purposes. Non-Banking Financial Companies (NBFCs) can also use these for the same purposes.

External Commercial Borrowings (ECB) raised for 7 years for repaying rupee loans taken for capital expenditures. NBFCs can also use these for the same purpose.

External Commercial Borrowings (ECB) raised for 10 years for repaying rupee loans taken for purposes other than capital expenditures. NBFCs can also use these for the same purpose.

Indian banks' foreign branches or subsidiaries cannot provide External Commercial Borrowings (ECB) for categories (b) through (e) - this applies to general corporate purposes, working capital, and repaying rupee loans.

The Minimum Average Maturity Period (MAMP) for ECBs must be strictly followed in situations where they are used for general corporate purposes, working capital, repaying rupee loans, or on-lending by NBFCs.

The All-in-Cost ceiling is the maximum interest rate plus fees that can be charged on an ECB for existing ECBs linked to LIBOR whose benchmarks are changed to ARR, and for new ECBs linked to spread.

The All-in-Cost ceiling for ECBs was temporarily raised by 100 basis points for loans taken until December 31, 2022.

The Reserve Bank of India (RBI) sets a threshold amount for ECB proposals. Any ECB proposal exceeding this limit needs to be reviewed by an Empowered Committee before receiving final approval.

The Empowered Committee comprises both external and internal members. The RBI ultimately makes the final decision on the ECB proposal, taking into account the Empowered Committee's recommendations.

Borrowers under the automatic route can approach an AD Category I bank with their proposal, submitting a completed Form ECB.

Apart from specific reporting requirements, ECB borrowers need to register their loan with the RBI and obtain a Loan Registration Number (LRN). To obtain the LRN, borrowers submit a certified Form ECB to their designated AD Category I bank.

The borrower should report any changes in the terms and conditions of their ECB to the RBI within 7 days of the changes being made.

Borrowers are required to submit a monthly report on their ECB transactions using Form ECB 2 Return. This report is submitted through their designated AD Category I bank and needs to reach the RBI within 7 working days of the end of the month.

There are penalties for late submission of ECB reports. This fee is applied when reports are submitted past the deadline.

The RBI has established different reporting requirements for various aspects of External Commercial Borrowings (ECB) to track and monitor the flow of foreign currency loans. This system ensures transparency and compliance within the ECB framework.

Overseas lenders/security trustees cannot acquire immovable assets (property) in India using ECB (External Commercial Borrowings).

Any sale of immovable property used as security for an ECB must be to an Indian resident, and the proceeds must be repatriated to cover the outstanding loan.

If an ECB borrower defaults, the lender's claim on movable assets is limited to the outstanding loan, regardless of whether they take over the asset.

Movable assets secured by an ECB can be exported, but only with a 'No Objection Certificate' from any domestic lenders.

Promoters can pledge shares of the borrowing company and its related Indian companies as security for ECBs.

Besides shares, bonds, debentures, government securities, and other financial instruments can also serve as security for ECBs.

Current and future loan assets, cash, and cash equivalents, including the borrower's rupee accounts in Indian banks, can be pledged as security for ECBs.

When an ECB pledge is invoked, the transfer of financial securities must comply with FDI/FII rules, including sector caps and pricing, as per the Foreign Exchange Management Regulations.

A company recognized by the Indian government as a startup, eligible to raise funds through external commercial borrowings (ECB) under simplified rules.

The minimum average maturity period for ECBs raised by startups must be at least 3 years.

A lender from a country that complies with the Financial Action Task Force (FATF) standards on anti-money laundering, combating financing of terrorism, and more. This helps prevent financial risks.

Startup ECBs can be raised as loans or through equity-like instruments (preference shares).

Startup ECBs can be in freely convertible currency (like US dollar, euro), Indian rupees, or a combination of both.

The maximum ECB amount per startup is capped at USD 3 million or equivalent per financial year. This helps manage risk and prevent excessive borrowing.

The total cost of borrowing, including interest rates, fees, and other expenses, is negotiated between the borrower and lender.

Startups can use ECB funds for any business expense, including operational costs, research and development, marketing, etc.