ECB 2.pdf - RBI Master Direction

RBI/FED/2015-16/15 FED Master Direction No.5/2015-16 January 1, 2016 (Updated as on November 22, 2018) (Updated as on October 11, 2018)...

RBI/FED/2015-16/15 FED Master Direction No.5/2015-16 January 1, 2016 (Updated as on November 22, 2018) (Updated as on October 11, 2018) (Updated as on May 09, 2018) (Updated as on March 16, 2018) (Updated as on January 16, 2018) (Updated as on October 9, 2017) (Updated as on June 9, 2017) (Updated as on February 23, 2017) (Updated as on November 15, 2016) (Updated as on October 20, 2016) (Updated as on September 19, 2016) (Updated as on June 30, 2016) (Updated as on May 11, 2016) (Updated as on April 13, 2016) (Updated as on March 30, 2016) To All Authorised Dealer Category – I banks and Authorised Banks Madam / Dear Sir, Master Direction - External Commercial Borrowings, Trade Credit, Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other than Authorised Dealers Transactions on account of External Commercial Borrowings (ECB) and Trade Credit are governed by clause (d) of sub-section 3 of section 6 of the Foreign Exchange Management Act, 1999 (FEMA). Various provisions in respect of these two types of borrowings from overseas are included in the following three Regulations framed under FEMA: i. Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000, notified vide Notification No. FEMA 3/2000-RB dated May 3, 2000; ii. Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004, notified vide Notification No. FEMA 120/2004-RB dated July 07, 2004; and iii. Foreign Exchange Management (Guarantees) Regulations, 2000, notified vide Notification No. FEMA 8/2000-RB dated May 03, 2000. These Regulations are amended from time to time to incorporate the changes in the regulatory framework and published through amendment notifications. 2. Within the contours of the Regulations, Reserve Bank of India also issues directions to Authorised Persons under Section 11 of the Foreign Exchange Management Act (FEMA), 1999. These directions lay down the modalities as to how the foreign exchange business has to be conducted by the Authorised Persons with their customers/constituents with a view to implementing the regulations framed. 3. Instructions issued in respect of aforesaid borrowing transactions have been compiled in this Master Direction. The document also contains the terms and conditions related to borrowing and lending in foreign currency by authorised dealer and by persons other than authorised dealer. The list of underlying notifications/circulars which form the basis of this Master Direction is furnished in the Appendix. Reporting instructions can be found in Master Direction on reporting (Master Direction No. 18 dated January 01, 2016). 4. It may be noted that, whenever necessary, Reserve Bank shall issue directions to Authorised Persons through A.P. (DIR Series) Circulars in regard to any change in the Regulations or the manner in which relative transactions are to be conducted by the Authorised Persons with their customers/ constituents. The Master Direction issued herewith shall be amended suitably simultaneously. Yours faithfully (Ajay Kumar Misra) Chief General Manager-in-Charge 1  Index Para. No. PART I 2 Framework for raising loans through External Commercial Borrowings 2.1 External Commercial Borrowings (ECB) 2.2 Forms of ECB 2.3 Available routes of raising ECB 2.4 Parameters for ECBs 2.4.1 Maturity prescription 2.4.2 Eligible Borrowers 2.4.3 Recognised Lenders 2.4.4 Cost of borrowings 2.4.5 Permitted end-uses 2.4.6 Individual limits 2.4.7 Currency of borrowing 2.5 Hedging requirements 1 2.5.1 Operational aspects on hedging 2.6 Security for raising of ECB 2.6.1 Additional Conditions 2.6.1.1 Creation of Charge on Immovable Assets 2.6.1.2 Creation of Charge on Movable Assets 2.6.1.3 Creation of Charge over Financial Securities 2.6.1.4 Issue of Corporate or Personal Guarantee 2.7 Issuance of Guarantee, etc. by Indian banks and Financial Institutions 2.8 Debt Equity Ratio 2.9 Parking of ECB proceeds 2.9.1 Parking of ECB proceeds abroad 2.9.2 Parking of ECB proceeds domestically 2.10 Conversion of ECB into equity 2.10.1 Exchange rate for conversion of ECB dues into equity 2.11 Procedure of raising ECB 2.12 Reporting Requirements 2.12.1 Loan Registration Number (LRN) 2.12.2 Changes in terms and conditions of ECB 2.12.3 Reporting of actual transactions 2.12.4 Reporting on account of conversion of ECB into equity 2.13 Foreign Currency Convertible Bonds (FCCBs) 2.14 Foreign Currency Exchangeable Bonds (FCEBs) 2.15 Refinancing of ECB 2.16 Powers delegated to AD Category I banks to deal with ECB cases 2.16.1 Additional requirements 2.17 Borrowing by Entities under Investigation 2.18 ECB by entities under Joint Lender Forum (JLF) or Corporate Debt Restructuring (CDR) 2.19 Dissemination of information 2.20 Compliance with the guidelines 2.21 ECB raised under the erstwhile USD 5 million Scheme 2.22 ECB arrangements prior to December 02, 2015 2.22.1 ECB facility for Carve Outs 2.22.1.1 ECB facility for working capital by airlines companies 1 Inserted vide AP (DIR Series) Circular No.15 dated November 07, 2016 2 2.22.1.2 ECB facility for consistent foreign exchange earners under the USD 10 billion Scheme 2.22.1.3 ECB facility for low cost affordable housing projects 2 2.23 ECB facility for Startups 2.23.1 Eligibility 2.23.2 Maturity 2.23.3 Recognised lenders 2.23.4 Form of borrowing 2.23.5 Currency of borrowing 2.23.6 Amount 2.23.7 All-in-cost 2.23.8 End uses 2.23.9 Conversion into equity 2.23.10 Security 2.23.11 Corporate and personal guarantee 2.23.12 Hedging 2.23.13 Conversion rate 2.23.14 Other provisions 2.24 ECB facility for Oil Marketing Companies 3 Framework for issuance of Rupee denominated bonds overseas 3.1 Form of borrowing 3.2 Available routes and limits of borrowing 3.3 Parameters of borrowing by issuance of Rupee denominated bonds 3.3.1 Minimum Maturity 3.3.2 Eligible borrowers 3 3.3.2.1 Indian banks as eligible borrowers 3.3.3 Recognised Investors 3.3.4 All-in-Cost 3.3.5 End-use Prescriptions 3.3.6 Exchange Rate for conversion 3.3.7 Hedging 3.3.8 Leverage Ratio 3.3.9 Other provisions Part II 4 Routing of funds raised abroad to India Part III 5 Raising of loans as Trade Credit 5.1 Trade Credit 5.2 Routes and Amount of Trade Credit 5.2.1 Automatic Route 5.2.2 Approval Route 5.3 Maturity prescription 5.4 Cost of raising Trade Credit 5.5 Guarantee for Trade Credit 5.6 Reporting requirements 5.6.1 Monthly reporting 5.6.2 Quarterly reporting 2 Inserted vide AP (DIR Series) Circular No.13 dated October 27, 2016 3 Inserted vide AP (DIR Series) Circular No.14 dated November 03, 2016 3  Part IV 6 Borrowing and Lending in foreign currency by an Authorised Dealer 6.1 Borrowing in foreign currency by an Authorised Dealer 6.2 Lending in foreign currency by an Authorised Dealer Part V 7 Borrowing and Lending in Foreign currency by persons other than authorised dealer 7.1 Borrowing in foreign currency by persons other than an authorised dealer 7.2 Lending in foreign currency by persons other than an authorised dealer Part VI 8 Structured Obligations 8.1 Non-resident guarantee for domestic fund based and non-fund based facilities 8.2 Facility of Credit Enhancement List of notifications/ circulars which have been consolidated in this Master Direction 4  Acronyms AD: Authorised Dealer ADB: Asian Development Bank AFC: Asset Finance Company AIC: All-in-Cost AMP: Average Maturity Period BSE: Bombay Stock Exchange CDC: Commonwealth Development Corporation CIC: Core Investment Company COD: Commercial Operation Date DEPR: Department of Economic and Policy Research DSIM: Department of Statistics and Information Management DTA: Domestic Tariff Area ECB: External Commercial Borrowings FATF: Financial Action Task Force FCCB: Foreign Currency Convertible Bond FCEB: Foreign Currency Exchangeable Bond FCNR(B): Foreign Currency Non-Resident (Bank) FDI: Foreign Direct Investment FED: Foreign Exchange Department FEMA: Foreign Exchange Management Act FIPB: Foreign Investment Promotion Board HFC: Housing Finance Company IDC: Interest during Construction IFC: Infrastructure Finance Company INR: Indian Rupee JV: Joint Venture LC: Letter of Credit LIBOR: London Interbank Offered Rate LoC: Letter of Comfort LoU: Letter of Undertaking LRN: Loan Registration Number MFI: Micro Finance Institution NBFC: Non-Banking Financial Company NGO: Non-Government Organisation NHB: National Housing Bank NMIZ: National Manufacturing Investment Zone NNPA: Net Non-Performing Assets NOF: Net Owned Fund NRE: Non-Resident External NRO: Non-Resident Ordinary NSE: National Stock Exchange OCB: Overseas Corporate Body ODI: Overseas Direct Investment RBI: Reserve Bank of India RoC: Registrar of Companies SEZ: Special Economic Zone SHG: Self-Help Group SIDBI: Small Industries Development Bank of India SME: Small and Medium Enterprise SPV: Special Purpose Vehicle USD: United States Dollar WOS: Wholly Owned Subsidiary 5  Master Direction - External Commercial Borrowings, Trade Credit, Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other than Authorised Dealers 1. Important terms used in the Master Direction 1.1 The term ‘All-in-Cost’ includes rate of interest, other fees, expenses, charges, guarantee fees whether paid in foreign currency or Indian Rupees (INR) but will not include commitment fees, pre-payment fees / charges, withholding tax payable in INR. In the case of fixed rate loans, the swap cost plus spread should be equivalent of the floating rate plus the applicable spread. 1.2 The term ‘Close relative’ means a relative as defined under the Companies Act, 1956/2013: Act of 1956 Act of 2013 U/s 6: MEANING OF "RELATIVE" U/s 2(77) ‘‘relative’’, with reference to any A person shall be deemed to be a relative of person, means anyone who is related to another, if, and only if, another, if— (a) they are members of a Hindu undivided (i) they are members of a Hindu Undivided family ; or Family; (b) they are husband and wife ; or (ii) they are husband and wife; or (c) the one is related to the other in the (iii) one person is related to the other in such manner indicated in Schedule IA. manner as may be prescribed. Schedule IA As prescribed Father Father (including step-father) Mother (including step-mother) Mother (including step-mother) Son (including step-son) Son (including step-son) Son's wife Son's wife Daughter (including step-daughter) Daughter Father's father Daughter's husband Father's mother Brother (including step-brothers) Mother's mother Sister (including step-sister) Mother's father - Son's son - Son's son's wife - Son's daughter - Son's daughter's husband - 6  Act of 1956 Act of 2013 Daughter's husband - Daughter's son - Daughter's son's wife - Daughter's daughter - Daughter's daughter's husband - Brother (including step-brothers) - Brother's wife - Sister (including step-sister) - Sister's husband - 1.3 Unless the context requires otherwise, the terms 'Authorised dealer', 'Authorised bank', 'Non-resident Indian (NRI)', 'Person of Indian origin (PIO)', 'NRE account', 'NRO account', 'NRNR account', 'NRSR account', and 'FCNR (B) account' shall have the same meanings as assigned to them respectively in Foreign Exchange Management (Deposits) Regulations, 2000 notified vide Notification No. FEMA 5/2000-RB dated May 03, 2000. 1.4 The term ‘Designated Authorized Dealer Category I Bank’ is the bank branch which is designated by the ECB borrower for meeting the reporting requirements including obtention of the Loan Registration Number (LRN) from RBI, exercising the delegated powers under these guidelines and monitoring of ECB transactions. 1.5 The term ‘Foreign Currency Convertible Bonds’ (FCCBs) refers to foreign currency denominated instruments which are issued in accordance with the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993 as amended from time to time. 1.6 The term ‘Foreign Currency Exchangeable Bonds’ (FCEBs) refers to foreign currency denominated instruments which are issued in accordance with the Issue of Foreign Currency Exchangeable Bonds Scheme, 2008. 1.7 The term ‘Foreign Equity Holder’ means (a) direct foreign equity holder with minimum 25% direct equity holding by the lender in the borrowing entity, (b) indirect equity holder with minimum indirect equity holding of 51%, and (c) group company with common overseas parent. 7 1.8 The term ‘Infrastructure Sector’ has the same meaning as given in the Harmonised Master List of Infrastructure sub-sectors approved by Government of India vide Notification F. No. 13/06/2009-INF dated March 27, 2012 as amended / updated from time to time. 4For the purpose of ECB, “Exploration, Mining and Refinery” sectors which are not included in the Harmonised list of infrastructure sector but were eligible to take ECB under the previous ECB framework (c.f. A.P. (DIR Series) Circular No. 48 dated September 18, 2013) will be deemed as in the infrastructure sector. 1.9 The terms ‘Person Resident in India’ and ‘Person Resident outside India’ shall have the same meanings as assigned to them in Sections 2(v) and 2(w) of the Foreign Exchange Management Act, 1999 (FEMA). 1.10 The term ‘RFC account’ shall have the same meaning as referred to in the Foreign Exchange Management (Foreign currency accounts by a person resident in India) Regulations, 2000. 1.11 The term ‘Indian entity’ means a company or a body corporate or a firm in India. 1.12 The term ‘Joint Venture abroad’ means a foreign concern formed, registered or incorporated in a foreign country in accordance with the laws and regulations of that country and in which investment has been made by an Indian entity. 1.13 The term ‘Wholly owned subsidiary abroad’ means a foreign concern formed, registered or incorporated in a foreign country in accordance with the laws and regulations of that country and whose entire capital is owned by an Indian entity. PART I 2. Framework for raising loans through External Commercial Borrowings 2.1 External Commercial Borrowings (ECB): ECBs are commercial loans raised by eligible resident entities from recognised non-resident entities and should conform to parameters such as minimum maturity, permitted and non-permitted end-uses, maximum all-in-cost ceiling, etc. The parameters apply in totality and not on a standalone basis. The framework for raising loans through ECB (herein after referred to as the ECB Framework) comprises the following three tracks: 4 Inserted vide A.P.(DIR Series) Circular No 56 dated March 30, 2016 8 Track I : Medium term foreign currency denominated ECB with minimum average maturity of 3/5 years. 5Manufacturing sector companies may raise foreign currency denominated ECBs with minimum average maturity period of 1 year. Track II : Long term foreign currency denominated ECB with minimum average maturity of 10 years. Track III : Indian Rupee (INR) denominated ECB with minimum average maturity 6 of 3/5 years. Manufacturing sector companies may raise INR denominated ECBs with minimum average maturity period of 1 year. 2.2 Forms of ECB: The ECB Framework enables permitted resident entities to borrow from recognized non-resident entities in the following forms: i. Loans including bank loans; ii. Securitized instruments (e.g. floating rate notes and fixed rate bonds, non- convertible, optionally convertible or partially convertible preference shares / debentures); iii. Buyers’ credit; iv. Suppliers’ credit; v. Foreign Currency Convertible Bonds (FCCBs); vi. Financial Lease; and vii. Foreign Currency Exchangeable Bonds (FCEBs) 7 However, ECB framework is not applicable in respect of the investment in Non- convertible Debentures (NCDs) in India made by Registered Foreign Portfolio Investors (RFPIs). 2.3 Available routes for raising ECB: Under the ECB framework, ECBs can be raised either under the automatic route or under the approval route. For the automatic route, the cases are examined by the Authorised Dealer Category-I (AD Category-I) banks. Under the approval route, the prospective borrowers are required to send their requests to the RBI through their ADs for examination. While the regulatory provisions are mostly similar, there are some differences in the form of amount of borrowing, eligibility of borrowers, permissible end-uses, etc. under the two routes. While the first six forms of borrowing, mentioned at 2.2 above, can be 5 Inserted vide A. P. (DIR Series) Circular No. 9 dated September 19, 2018 6 Inserted vide A. P. (DIR Series) Circular No. 9 dated September 19, 2018 7 Inserted vide A.P.(DIR Series) Circular No 56 dated March 30, 2016 9 raised both under the automatic and approval routes, FCEBs can be issued only under the approval route. 2.4 Parameters for ECBs: Various parameters of raising loan under ECB framework are mentioned in the following sub-paragraphs. 2.4.1 Minimum Average Maturity Period: The minimum average maturities for the three tracks are set out as under: Track I Track II Track III 8 i. 1 year for ECB up to 10 years irrespective of the Same as under Track I. USD 50 million or its amount. equivalent for companies in manufacturing sector only. ii. 3 years for ECB upto USD 50 million or its equivalent. iii. 5 years for ECB beyond USD 50 million or its equivalent. 9 iv. 3 years for eligible borrowers under para 2.4.2.vi, irrespective of the amount of borrowing. 10 v. 5 years for Foreign Currency Convertible Bonds (FCCBs)/ Foreign Currency Exchangeable Bonds (FCEBs) irrespective of the amount of borrowing. The call and put option, if any, for FCCBs shall not be exercisable prior to 5 years. 2.4.2 Eligible Borrowers: The list of entities eligible to raise ECB under the three tracks is set out in the following table. 8 Inserted vide A. P. (DIR Series) Circular No. 9 dated September 19, 2018 9 Inserted vide A.P.(DIR Series) Circular No 56 dated March 30, 2016 and amended from “5 years” to “3 years” vide A.P. (DIR Series) Circular No.11 dated November 6, 2018 10 Inserted vide A.P.(DIR Series) Circular No 56 dated March 30, 2016 10  Track I Track II Track III i. Companies in i. All entities listed under i. All entities listed under manufacturing and Track I. Track II. software development ii. 13Real Estate ii. All Non-Banking Financial sectors. Investment Trusts Companies ii. Shipping and airlines (REITs) and (NBFCs) 14coming under companies. Infrastructure the regulatory purview of iii. Small Industries Investment Trusts the Reserve Bank. Development Bank of (INVITs) coming under iii. NBFCs-Micro Finance India (SIDBI). the regulatory Institutions (NBFCs- iv. Units in Special framework of the MFIs), Not for Profit Economic Zones Securities and companies registered (SEZs). Exchange Board of under the Companies v. Export Import Bank of India (SEBI). Act, 1956/2013, India (Exim Bank) Societies, trusts and (only under the cooperatives (registered approval route). under the Societies vi. 11Companies in Registration Act, 1860, infrastructure sector, Indian Trust Act, 1882 Non-Banking Financial and State-level Companies - Cooperative Acts/Multi- Infrastructure Finance level Cooperative Companies (NBFC- Act/State-level mutually IFCs), NBFCs-Asset aided Cooperative Acts Finance Companies respectively), Non- (NBFC-AFCs), Holding Government Companies and Core Organisations (NGOs) Investment Companies which are engaged in (CICs). 12 Also, micro finance activities1. Housing Finance iv. Companies engaged in Companies, regulated miscellaneous services by the National viz. research and Housing Bank, Port development (R&D), Trusts constituted training (other than under the Major Port educational institutes), Trusts Act, 1963 or companies supporting Indian Ports Act, 1908. infrastructure, companies providing logistics 15 services. Also, companies engaged in maintenance, repair and overhaul and freight forwarding. v. Developers of Special Economic Zones (SEZs)/ National Manufacturing and Investment Zones (NMIZs). 11 Inserted vide A.P.(DIR Series) Circular No 56 dated March 30, 2016 12 Inserted vide A.P. (DIR Series) Circular No.25 dated April 27, 2018 13 Shifted to/made part of Track I vide A.P. (DIR Series) Circular No 56 dated March 30, 2016. Consequently, under Track II, points (ii) companies in infrastructure sector, (iii) holding companies and (iv) Core Investment Companies (CICs) stand deleted. 14 Inserted vide A.P.(DIR Series) Circular No 56 dated March 30, 2016 15 Inserted vide A.P. (DIR Series) Circular No.25 dated April 27, 2018 11 Notes: 1. Entities engaged in micro-finance activities to be eligible to raise ECB: (i) should have a satisfactory borrowing relationship for at least three years with an AD Category I bank in India, and (ii) should have a certificate of due diligence on ‘fit and proper’ status from the AD Category I bank. 2.4.3 Recognised Lenders/Investors: The list of recognized lenders / investors for the three tracks will be as follows: Track I Track II Track III i. International banks. All entities listed under All entities listed under Track I ii. International capital Track I but for overseas but for overseas branches / markets. branches / subsidiaries of subsidiaries of Indian banks. In iii. Multilateral financial Indian banks. case of NBFCs-MFIs, other institutions (such as, eligible MFIs, not for profit IFC, ADB, etc.) / companies and NGOs, ECB regional financial can also be availed from institutions and overseas organisations3 and Government owned individuals4. (either wholly or partially) financial institutions. iv. Export credit agencies. v. Suppliers of equipment. vi. Foreign equity holders. vii. Overseas long term investors such as: a. Prudentially regulated financial entities; b. Pension funds; c. Insurance companies; d. Sovereign Wealth Funds; e. Financial institutions located in International Financial Services Centres in India viii. Overseas branches / subsidiaries of Indian banks2 Notes: 2. Overseas branches / subsidiaries of Indian banks can be lenders only under Track I. Further, their participation under this track is subject to the prudential norms issued by the Department of Banking Regulation, RBI. 16. 3. Overseas Organizations proposing to lend ECB would have to furnish to the authorised dealer bank of the borrower a certificate of due diligence from an overseas bank, which, in turn, is subject to regulation of host-country regulators and such host country adheres to the Financial Action Task 16 Deleted vide A. P. (DIR Series) Circular No. 15 dated January 4, 2018 Deleted portion read as “Indian banks are not permitted to participate in refinancing of existing ECBs” 12 Force (FATF) guidelines on anti-money laundering (AML)/ combating the financing of terrorism (CFT). The certificate of due diligence should comprise the following: (i) that the lender maintains an account with the bank at least for a period of two years, (ii) that the lending entity is organised as per the local laws and held in good esteem by the business/local community, and (iii) that there is no criminal action pending against it. 4. Individual lender has to obtain a certificate of due diligence from an overseas bank indicating that the lender maintains an account with the bank for at least a period of two years. Other evidence /documents such as audited statement of account and income tax return, which the overseas lender may furnish, need to be certified and forwarded by the overseas bank. Individual lenders from countries which do not adhere to FATF guidelines on AML / CFT are not eligible to extend ECB. 2.4.4 All-in-Cost (AIC): The all-in-cost requirements for the three tracks will be as under: Track I Track II Track III 17 18 19 i. The all-in-cost ceiling is i. The maximum i. The maximum prescribed through a spread spread over the spread will be 450 over the benchmark, i.e., 450 benchmark of 6 basis points per basis points per annum over 6 month LIBOR or annum over the month LIBOR or applicable applicable prevailing yield of benchmark for the respective benchmark for the the Government of currency. respective currency India securities of ii. Penal interest, if any, for default will be 450 basis corresponding or breach of covenants should points per annum. maturity. not be more than 2 per cent ii. Remaining ii. Same as Track I. over and above the contracted conditions will be as rate of interest. given under Track I. 2.4.5 End-use prescriptions: The end-use prescriptions for ECB raised under the 20 three tracks are as under: The negative list for all Tracks would include the following: a. Investment in real estate or purchase of land except when used for affordable housing as defined in Harmonised Master List of Infrastructure Sub-sectors notified by Government of India, construction and development of SEZ and industrial parks/integrated townships. b. Investment in capital market. c. Equity investment. Additionally for Tracks I and III, the following negative end uses will also apply except when raised from Direct and Indirect equity holders or from a Group company, and provided the loan is for a minimum average maturity of five years: d. Working capital purposes. 17 Modified vide A.P. (DIR Series) Circular No.25 dated April 27, 2018. Prior to modification it read as “The all-in-cost ceiling is prescribed through a spread over the benchmark as under: a. For ECB with minimum average maturity period of 3 years to 5 years 300 basis points per annum over 6 month LIBOR or applicable benchmark for the respective currency. b. For ECB with average maturity period of more than 5 years – 450 basis points per annum over 6 month LIBOR or applicable benchmark for the respective currency.” 18 Modified vide A.P. (DIR Series) Circular No.25 dated April 27, 2018. Prior to modification it read as “The maximum spread over the benchmark will be 500 basis points per annum.” 19 Modified vide A.P. (DIR Series) Circular No.25 dated April 27, 2018. Prior to modification it read as “The all-in-cost should be in line with the market conditions.” 20 Inserted vide A.P. (DIR Series) Circular No.25 dated April 27, 2018 13  e. General corporate purposes. f. Repayment of Rupee loans. Finally, for all Tracks, the following negative end use will also apply: g. On-lending to entities for the above activities from (a) to (f). 21 21 Deleted vide A.P. (DIR Series) Circular No.25 dated April 27, 2018 Prior to deletion it had the following table Track I Track II Track III i. ECB proceeds can be utilised for capital 1. The ECB proceeds NBFCs can use ECB proceeds only expenditure in the form of: can be used for all for: purposes excluding a. On-lending for any a. Import of capital goods including payment the following: activities, including towards import of services, technical know- infrastructure sector as how and license fees, provided the same are i. Real estate permitted by the concerned part of these capital goods; activities regulatory department of b. Local sourcing of capital goods; ii. Investing in RBI; c. New project; capital market d. Modernisation /expansion of existing units; iii. Using the b. providing hypothecated e. Overseas direct investment in Joint ventures proceeds for loans to domestic entities (JV)/ Wholly owned subsidiaries (WOS); equity investment for acquisition of capital f. Acquisition of shares of public sector domestically; goods/equipment; and undertakings at any stage of disinvestment iv. On-lending c. providing capital under the disinvestment programme of the to other entities goods/equipment to Government of India; with any of the domestic entities by way of g. Refinancing of existing trade credit raised for above objectives; lease and hire-purchases import of capital goods; v. Purchase of h. Payment of capital goods already shipped / land 2. Developers of SEZs/ NMIZs can imported but unpaid; raise ECB only for providing i. Refinancing of existing ECB provided the infrastructure facilities within SEZ/ residual maturity is not reduced. NMIZ. ii. SIDBI can raise ECB only for the purpose of on- lending to the borrowers in the Micro, Small and 3. NBFCs-MFI, other eligible MFIs, Medium Enterprises (MSME sector), where NGOs and not for profit companies MSME sector is as defined under the MSME registered under the Companies Act, Development Act, 2006, as amended from time 1956/2013 can raise ECB only for to time. on-lending to self-help groups or for iii. Units of SEZs can raise ECB only for their own micro-credit or for bonafide micro requirements. finance activity including capacity iv. Shipping and airlines companies can raise ECB building. only for import of vessels and aircrafts respectively. 4. For other eligible entities under v. ECB proceeds can be used for general corporate this track, the ECB proceeds can be purpose (including working capital) provided the used for all purposes excluding the ECB is raised from the direct / indirect equity following: holder or from a group company for a minimum average maturity of 5 years. i. Real estate activities vi. NBFC-IFCs and NBFCs-AFCs can raise ECB ii. Investing in capital only for financing infrastructure. market vii. Holding Companies and CICs shall use ECB iii. Using the proceeds for proceeds only for on-lending to infrastructure equity investment Special Purpose Vehicles (SPVs) domestically; viii. ECBs for the following purposes will be iv. On-lending to other considered only under the approval route: entities with any of the a. Import of second hand goods as per the above objectives; Director General of Foreign Trade (DGFT) v. Purchase of land guidelines; b. On-lending by Exim Bank. 14 2.4.6 Individual Limits: The individual limits refer to the amount of ECB which can be raised in a financial year under the automatic route. i. The individual limits of ECB that can be raised by eligible entities under the automatic route per financial year for all the three tracks are set out as under: a. Up to USD 750 million or equivalent for the companies in infrastructure and manufacturing sectors, 22 Non-Banking Financial Companies -Infrastructure Finance Companies (NBFC-IFCs), NBFCs-Asset Finance Companies (NBFC- AFCs), Holding Companies and Core Investment Companies; b. Up to USD 200 million or equivalent for companies in software development sector; c. Up to USD 100 million or equivalent for entities engaged in micro finance activities; and d. Up to USD 500 million or equivalent for remaining entities. ii. ECB proposals beyond aforesaid limits will come under the approval route. For computation of individual limits under Track III, exchange rate prevailing on the date of agreement should be taken into account. iii. In case the ECB is raised from direct equity holder, aforesaid individual ECB limits will also subject to ECB liability: equity ratio6 requirement. 23 The ECB liability of the borrower (including all outstanding ECBs and the proposed one) towards the foreign 24 equity holder should not be more than seven times of the equity contributed by the 25 latter. This ratio will not be applicable if total of all ECBs raised by an entity is up to USD 5 million or equivalent. Notes 6. For the purpose of ECB liability: equity ratio, the paid-up capital, free reserves (including the share premium received in foreign currency) as per the latest audited balance sheet can be reckoned for calculating the ‘equity’ of the foreign equity holder. Where there are more than one foreign equity holders in the borrowing company, the portion of the share premium in foreign currency brought in by the lender(s) concerned shall only be considered for calculating the ratio. 22 Inserted vide A.P.(DIR Series) Circular No. 56 dated March 30, 2016 23 Deleted vide A.P. (DIR Series) Circular No.25 dated April 27, 2018 Deleted portion read as “For ECB raised under the automatic route,” 24 Modified vide A.P. (DIR Series) Circular No.25 dated April 27, 2018. Prior to modification it read as “four” 25 Deleted vide A.P. (DIR Series) Circular No.25 dated April 27, 2018 Deleted portion read as “For ECB raised under the approval route, this ratio should not be more than 7:1.” 15 2.4.7 Currency of Borrowing: ECB can be raised in any freely convertible foreign currency as well as in Indian Rupees. Further details are given below: i. In case of Rupee denominated ECB, the non-resident lender, other than foreign equity holders, should mobilise Indian Rupees through swaps/outright sale undertaken through an AD Category I bank in India. ii. Change of currency of ECB from one convertible foreign currency to any other convertible foreign currency as well as to INR is freely permitted. Change of currency from INR to any foreign currency is, however, not permitted. iii. Change of currency of ECB into INR can be at the exchange rate prevailing on the date of the agreement between the parties concerned for such change or at an exchange rate which is less than the rate prevailing on the date of agreement if consented to by the ECB lender. 2.5 Hedging Requirements: 26 Borrowers eligible in terms of paragraph 2.4.2.vi above shall have a board approved risk management policy and shall keep their 27 ECB exposure hedged 100 per cent at all times in case the average maturity is less than 5 years. Further, the designated AD Category-I bank shall verify that 100 per cent hedging requirement is complied with during the currency of ECB and report the position to RBI through ECB 2 returns. Also, the entities raising ECB under the provisions of tracks I and II are required to follow the guidelines for hedging issued, if any, by the concerned sectoral or prudential regulator in respect of foreign currency exposure. 28 2.5.1 Operational aspects on hedging: Wherever hedging has been mandated by the RBI, the following should be ensured: i. Coverage: The ECB borrower will be required to cover principal as well as coupon through financial hedges. The financial hedge for all exposures on account of ECB should start from the time of each such exposure (i.e. the day liability is created in the books of the borrower). ii. Tenor and rollover: A minimum tenor of one year of financial hedge would be required with periodic rollover duly ensuring that the exposure on account of ECB is not unhedged at any point during the currency of ECB. 26 Inserted vide A.P.(DIR Series) Circular No. 56 dated March 30, 2016 27 Inserted vide A.P. (DIR Series) Circular No.11 dated November 6, 2018 28 Inserted vide A.P.(DIR Series) Circular No. 15 dated November 7, 2016 16 iii. Natural Hedge: Natural hedge, in lieu of financial hedge, will be considered only to the extent of offsetting projected cash flows / revenues in matching currency, net of all other projected outflows. For this purpose, an ECB may be considered naturally hedged if the offsetting exposure has the maturity/cash flow within the same accounting year. Any other arrangements/ structures, where revenues are indexed to foreign currency will not be considered as natural hedge. 2.6 Security for raising ECB: AD Category I banks are permitted to allow creation of charge on immovable assets, movable assets, financial securities and issue of corporate and/ or personal guarantees in favour of overseas lender / security trustee, to secure the ECB to be raised / raised by the borrower, subject to satisfying themselves that: i. the underlying ECB is in compliance with the extant ECB guidelines, ii. there exists a security clause in the Loan Agreement requiring the ECB borrower to create charge, in favour of overseas lender / security trustee, on immovable assets / movable assets / financial securities / issuance of corporate and / or personal guarantee, and iii. No objection certificate, as applicable, from the existing lenders in India has been obtained. 2.6.1 Additional conditions: Once aforesaid stipulations are met, the AD Category I bank may permit creation of charge on immovable assets, movable assets, financial securities and issue of corporate and / or personal guarantees, during the currency of the ECB with security co-terminating with underlying ECB, subject to the following: 2.6.1.1 Creation of Charge on Immovable Assets: The arrangement shall be subject to the following: i. Such security shall be subject to provisions contained in the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000. ii. The permission should not be construed as a permission to acquire immovable asset (property) in India, by the overseas lender/ security trustee. 17  iii. In the event of enforcement / invocation of the charge, the immovable asset/ property will have to be sold only to a person resident in India and the sale proceeds shall be repatriated to liquidate the outstanding ECB. 2.6.1.2 Creation of Charge on Movable Assets: In the event of enforcement/ invocation of the charge, the claim of the lender, whether the lender takes over the movable asset or otherwise, will be restricted to the outstanding claim against the ECB. Encumbered movable assets may also be taken out of the country subject to getting ‘No Objection Certificate’ from domestic lender/s, if any. 2.6.1.3 Creation of Charge over Financial Securities: The arrangements may be permitted subject to the following: i. Pledge of shares of the borrowing company held by the promoters as well as in domestic associate companies of the borrower is permitted. Pledge on other financial securities, viz. bonds and debentures, Government Securities, Government Savings Certificates, deposit receipts of securities and units of the Unit Trust of India or of any mutual funds, standing in the name of ECB borrower/promoter, is also permitted. ii. In addition, security interest over all current and future loan assets and all current assets including cash and cash equivalents, including Rupee accounts of the borrower with ADs in India, standing in the name of the borrower/promoter, can be used as security for ECB. The Rupee accounts of the borrower/promoter can also be in the form of escrow arrangement or debt service reserve account. iii. In case of invocation of pledge, transfer of financial securities shall be in accordance with the extant FDI/FII policy including provisions relating to sectoral cap and pricing as applicable read with the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000. 2.6.1.4 Issue of Corporate or Personal Guarantee: The arrangement shall be subject to the following: i. A copy of Board Resolution for the issue of corporate guarantee for the company issuing such guarantee, specifying name of the officials authorised 18  to execute such guarantees on behalf of the company or in individual capacity should be obtained. ii. Specific requests from individuals to issue personal guarantee indicating details of the ECB should be obtained. iii. Such security shall be subject to provisions contained in the Foreign Exchange Management (Guarantees) Regulations, 2000. iv. ECB can be credit enhanced / guaranteed / insured by overseas party/ parties only if it/ they fulfil/s the criteria of recognised lender under extant ECB guidelines. 2.7 Issuance of Guarantee, etc. by Indian banks and Financial Institutions: Issuance of guarantee, standby letter of credit, letter of undertaking or letter of comfort by Indian banks, All India Financial Institutions and NBFCs relating to ECB is not permitted. Further, financial intermediaries (viz. Indian banks, All India Financial Institutions, or NBFCs) shall not invest in FCCBs in any manner whatsoever. 2.8 Debt Equity Ratio: The borrowing entities will be governed by the guidelines on debt equity ratio issued, if any, by the sectoral or prudential regulator concerned. 2.9 Parking of ECB proceeds: ECB proceeds are permitted to be parked abroad as well as domestically in the manner given below: 2.9.1 Parking of ECB proceeds abroad: ECB proceeds meant only for foreign currency expenditure can be parked abroad pending utilization. Till utilisation, these funds can be invested in the following liquid assets (a) deposits or Certificate of Deposit or other products offered by banks rated not less than AA (-) by Standard and Poor/ Fitch IBCA or Aa3 by Moody’s; (b) Treasury bills and other monetary instruments of one year maturity having minimum rating as indicated above and (c) deposits with overseas branches/ subsidiaries of Indian banks abroad. 2.9.2 Parking of ECB proceeds domestically: ECB proceeds meant for Rupee expenditure should be repatriated immediately for credit to their Rupee accounts with AD Category I banks in India. ECB borrowers are also allowed to park ECB proceeds in term deposits with AD Category I banks in India for a maximum period of 12 months. These term deposits should be kept in unencumbered position. 19  29 2.10 Conversion of ECB into equity: Conversion of ECBs, including those which are matured but unpaid, into equity is permitted subject to the following conditions: i. The activity of the borrowing company is covered under the automatic route for Foreign Direct Investment (FDI) or approval from the Foreign Investment Promotion Board (FIPB), wherever applicable, for foreign equity participation has been obtained as per the extant FDI policy; 30 ii. The conversion, which should be with the lender’s consent and without any additional cost, will not result in breach of applicable sector cap on the foreign equity holding; iii. Applicable pricing guidelines for shares are complied with; 31 iv. Reporting requirements as given at 2.12.4 are fulfilled; v. If the borrower concerned has availed of other credit facilities from the Indian banking system, including overseas branches/subsidiaries, the applicable prudential guidelines issued by the Department of Banking Regulation of RBI, including guidelines on restructuring are complied with; and vi. Consent of other lenders, if any, to the same borrower is available or atleast information regarding conversions is exchanged with other lenders of the borrower. 2.10.1 Exchange rate for conversion of ECB dues into equity: For conversion of ECB dues into equity, the exchange rate prevailing on the date of the agreement between the parties concerned for such conversion or any lesser rate can be applied with a mutual agreement with the ECB lender. It may be noted that the fair value of the equity shares to be issued shall be worked out with reference to the date of conversion only. 2.11 Procedure of raising ECB: For approval route cases, the borrowers may approach the RBI with an application in prescribed format Form ECB for examination through their AD Category I bank. Such cases shall be considered keeping in view 29 Inserted vide A.P. (DIR Series) Circular No. 10 dated October 20, 2016 30 Modified vide AP (DIR Series) Circular No.10 dated October 20, 2016 prior to modification it read as “The foreign equity holding after such conversion of debt into equity is within the applicable sectoral cap” 31 Point iv.v and vi Inserted vide A. P. (DIR Series) Circular No. 10 dated October 20, 2016 20 the overall guidelines, macroeconomic situation and merits of the specific proposals 32. ECB proposals received in the Reserve Bank above certain threshold limit (refixed from time to time) would be placed before the Empowered Committee set up by the Reserve Bank. The Empowered Committee will have external as well as internal members and the Reserve Bank will take a final decision in the cases taking into account recommendation of the Empowered Committee. Entities desirous to raise ECB under the automatic route may approach an AD Category I bank with their proposal along with duly filled in Form 83. Formats of Form ECB and Form 83 are available at Annex I and II respectively of Part V of the Master Directions – Reporting under Foreign Exchange Management Act, 1999. 2.12 Reporting Requirements: Borrowings under ECB Framework are subject to reporting requirements in respect of the following: 2.12.1 Loan Registration Number (LRN): Any draw-down in respect of an ECB as well as payment of any fees / charges for raising an ECB should happen only after obtaining the LRN from RBI. To obtain the LRN, borrowers are required to submit duly certified Form 83, which also contains terms and conditions of the ECB, in duplicate to the designated AD Category I bank. In turn, the AD Category I bank will forward one copy to the Director, Balance of Payments Statistics Division, Department of Statistics and Information Management (DSIM), Reserve Bank of 33 India, Bandra-Kurla Complex, Mumbai – 400 051, Contact numbers 022-26572513 and 022-26573612. Copies of loan agreement for raising ECB are not required to be submitted to the Reserve Bank. 2.12.2 Changes in terms and conditions of ECB: Permitted changes in ECB parameters should be reported to the DSIM through revised Form 83 at the earliest, in any case not later than 7 days from the changes effected. While submitting revised Form 83 the changes should be specifically mentioned in the communication. 2.12.3 Reporting of actual transactions: The borrowers are required to report actual ECB transactions through ECB 2 Return through the AD Category I bank on monthly basis so as to reach DSIM within seven working days from the close of month to which it relates. Changes, if any, in ECB parameters should also be 32 Modified vide AP (DIR Series) Circular No.80 dated June 30,2016 prior to modification it read as “by an Empowered Committee set up by RBI. The Empowered Committee will have external as well as internal members.” 33 Contact numbers inserted 21 incorporated in ECB 2 Return. Format of ECB 2 Return is available at Annex III of Part V of Master Directions – Reporting under Foreign Exchange Management Act. 2.12.4 Reporting on account of conversion of ECB into equity: In case of partial or full conversion of ECB into equity, the reporting to the RBI will be as under: i. For partial conversion, the converted portion is to be reported to the concerned Regional Office of the Foreign Exchange Department of RBI in Form FC-GPR prescribed for reporting of FDI flows, while monthly reporting to DSIM in ECB 2 Return will be with suitable remarks "ECB partially converted to equity". ii. For full conversion, the entire portion is to be reported in Form FC-GPR, while reporting to DSIM in ECB 2 Return should be done with remarks “ECB fully converted to equity”. Subsequent filing of ECB 2 Return is not required. iii. For conversion of ECB into equity in phases, reporting through ECB 2 Return will also be in phases. 2.13 Foreign Currency Convertible Bonds (FCCBs): The issuance of FCCBs was brought under the ECB guidelines in August 2005. Issuance of FCCBs shall conform to the Foreign Direct Investment guidelines including sectoral cap. In addition to the requirements of (i) minimum maturity of 5 years, (ii) the call & put option, if any, shall not be exercisable prior to 5 years, (iii) issuance without any warrants attached, (iv) the issue related expenses not exceeding 4 per cent of issue size and in case of private placement, not exceeding 2 per cent of the issue size, etc. as required in terms of provisions contained in Regulation 21 of the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2000 read with Schedule I to the Regulations, FCCBs are also subject to all the regulations which are applicable to ECBs. 2.14 Foreign Currency Exchangeable Bonds (FCEBs): FCEBs can be issued only under the approval route and shall have minimum maturity of 5 years. The bonds are exchangeable into equity share of another company, to be called the Offered Company, in any manner, either wholly, or partly or on the basis of any equity related warrants attached to debt instruments. Issuance of FCEBs shall conform to the provisions contained in Regulation 21 of the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2000 read with Schedule IV 22 to the Regulations which contain eligibilities in respect of the issuer, offered company, subscriber, permitted end-uses, etc. The all-in-cost of FCEBs should be within the ceiling specified by RBI for ECB. 2.15 Refinancing of ECB: Refinancing of existing ECB with fresh ECB is permitted provided the fresh ECB is raised at a lower all-in-cost and residual maturity is not 34 35 reduced.. Overseas branches/subsidiaries of Indian banks are permitted only to refinance ECBs of highly rated (AAA) corporates as well as Navratna and Maharatna PSUs, provided the outstanding maturity of the original borrowing is not reduced and all-in-cost of fresh ECB is lower than the existing ECB. Partial refinance of existing ECBs is also permitted subject to same conditions. 2.16 Powers delegated to AD Category I banks to deal with ECB cases: The designated AD Category I banks can approve the following requests from the borrowers for changes in respect of ECBs 36except for FCCBs/FCEBs : i. Changes/Modifications in the Drawdown/Repayment Schedule: Designated AD Category I banks may approve changes / modifications (irrespective of the number of occasions) in the draw-down and repayment schedules of the ECB whether associated with change in the average maturity period or not and/ or with changes (increase/ decrease) in the all-in-cost. ii. Changes in the Currency of Borrowing: Designated AD Category I banks may allow changes in the currency of borrowing of the ECB to any other freely convertible currency or to INR subject to compliance with other prescribed parameters. Change of currency of INR denominated ECB is not permitted. iii. Change of the AD Category I bank: AD Category I bank can be changed subject to obtaining no objection certificate from the existing AD Category I bank. iv. Changes in the name of the Borrower Company: Designated AD Category I banks may allow changes in the name of the borrower company subject to production of supporting documents evidencing the change in the name from the Registrar of Companies/ appropriate authority. 34 Deleted vide A. P. (DIR Series) Circular No. 15 dated January 4, 2018 Deleted portion read as “Indian banks are not permitted to participate in refinancing of existing ECBs. 35 Inserted vide A. P. (DIR Series) Circular No. 15 dated January 4, 2018 36 Inserted vide A.P.(DIR Series) Circular No 56 dated March 30, 2016 23 v. Transfer of ECB: Designated AD Category I banks may allow the cases requiring transfer of the ECB from one company to another on account of re-organisation at the borrower’s level in the form of merger/ demerger/ amalgamation/ acquisition duly as per the applicable laws/ rules after satisfying themselves that the company acquiring the ECB is an eligible borrower. vi. Change in the recognized lender: Designated ADs Category I may approve the requests from the ECB borrowers for change in the recognized lender provided (a) the original lender as well as the new lender are recognised lender as per extant ECB guidelines and, (b) there is no change in the other terms and conditions of the ECB. If not, case has to be referred to the Foreign Exchange Department, Central Office, Reserve Bank of India, Mumbai. vii. Change in the name of Lender: Designated AD Category I banks may permit changes in the name of the lender of ECB after satisfying themselves with the bonafides of the transactions and ensuring that the ECB continues to be in compliance with applicable guidelines. viii. Prepayment of ECB: Prepayment of ECB may be allowed by AD Category I banks subject to compliance with the stipulated minimum average maturity as applicable to the contracted loan under these guidelines. ix. Cancellation of LRN: The designated AD Category I banks may directly approach DSIM for cancellation of LRN for ECBs contracted, subject to ensuring that no draw down against the said LRN has taken place and the monthly ECB-2 returns till date in respect of the allotted LRN have been submitted to DSIM. x. Change in the end-use of ECB proceeds: The designated AD Category I banks may approve requests from ECB borrowers for change in end-use in respect of ECBs availed of under the automatic route, provided the proposed end-use is permissible under the automatic route as per the extant ECB guidelines7. xi. Reduction in amount of ECB: Designated AD Category I banks may approve reduction in the amount of ECB (irrespective of the number of occasions) with or without any changes in draw-down and repayment schedules, average maturity period and all-in-cost duly ensuring compliance with the applicable ECB guidelines. xii. Change in all-in-cost of ECB: The designated AD Category I banks may approve requests from ECB borrowers for changes (decrease/increase) in all-in-cost 24 of the ECBs irrespective of the number of occasions subject to the applicable ECB norms for automatic route. xiii. Refinancing of existing ECB: The designated AD Category I bank may allow refinancing of existing ECB by raising fresh ECB provided the outstanding maturity of the original borrowing is not reduced and all-in-cost of fresh ECB is lower than the 37 existing ECB. In case of involvement of overseas branches/subsidiaries of Indian banks, conditions as given at paragraph 2.15 will be applicable. 38 Further, refinancing of ECBs raised under the previous ECB framework may also be permitted, subject to additionally ensuring that the borrower is eligible to raise ECB under the extant framework. Raising of fresh ECB to part refinance the existing ECB is also permitted subject to same conditions. 39 xiv. Extension of matured but unpaid ECB : The designated AD Category I bank may allow extension of matured but unpaid ECB subject to the consent of lender, without involvement of additional cost and fulfilment of reporting requirements. 2.16.1 Additional Requirements: While permitting changes under the delegated powers, the AD Category I banks should ensure that: 40 i. The revised average maturity and / or all-in-cost is/are in conformity with the applicable ceilings / guidelines and the ECB continues to be in compliance with applicable guidelines. It should also be ensured that if the ECB borrower has availed of credit facilities from the Indian banking system, including overseas branches/subsidiaries, any extension of tenure of ECB (whether matured or not) shall be subject to applicable prudential guidelines issued by Department of Banking Regulation of RBI including guidelines on restructuring. ii. The changes in the terms and conditions of ECB allowed by the ADs under the powers delegated and / or changes approved by the Reserve Bank should be reported to the DSIM/RBI through revised Form 83 at the earliest, in any case not later than 7 days from the changes effected. While submitting revised Form 83 to the DSIM/RBI, the changes should be specifically mentioned in the 37 Inserted due to issuance of A. P (DIR Series) Circular No. 15 dated January 4, 2018. 38 Inserted vide A.P.(DIR Series) Circular No 56 dated March 30, 2016 39 Inserted vide A. P (DIR series) Circular No. 10 dated October 20, 2016 40 Modified vide A. P (DIR series) Circular No. 10 dated October 20, 2016. Prior to modification it read as “The revised average maturity and / or all-in-cost is/are in conformity with the applicable ceilings / guidelines and the changes are effected during the tenure of the ECB and the ECB continues to be in compliance with applicable guidelines” 25  communication. Further, these changes should also get reflected in the ECB 2 returns appropriately. Notes: 7. Changes in the end-use of ECBs raised under the approval route will continue to be referred to the Foreign Exchange Department, Central Office, Reserve Bank of India, Mumbai. 2.17 Borrowing by Entities under Investigation: All entities against which investigation / adjudication / appeal by the law enforcing agencies for violation of any of the provisions of the Regulations under FEMA pending, may raise ECBs as per the applicable norms, if they are otherwise eligible, notwithstanding the pending investigations / adjudications / appeals, without prejudice to the outcome of such investigations / adjudications / appeals. The borrowing entity shall inform about pendency of such investigation / adjudication / appeal to the AD Cat-I bank / RBI as the case may be. Accordingly, in case of all applications where the borrowing entity has indicated about the pending investigations / adjudications / appeals, the AD Category I Banks / Reserve Bank while approving the proposal shall intimate the agencies concerned by endorsing a copy of the approval letter. 2.18 ECB by entities under Joint Lender Forum (JLF) or Corporate Debt Restructuring (CDR): An entity which is under Joint Lender Forum (JLF) / Corporate Debt Restructuring (CDR) can raise ECB only with explicit permission of the JLF / CDR Empowered Committee. 2.19 Dissemination of information: For providing greater transparency, information with regard to the name of the borrower, amount, purpose and maturity of ECB under both Automatic and Approval routes are put on the RBI’s website, on a monthly basis, with a lag of one month to which it relates. 2.20 Compliance with the guidelines: The primary responsibility for ensuring that the borrowing is in compliance with the applicable guidelines is that of the borrower concerned. Any contravention of the applicable provisions of ECB guidelines will invite penal action under the FEMA. The designated AD Category I bank is also expected to ensure compliance with applicable ECB guidelines by their constituents. 2.21 ECB raised under the erstwhile USD 5 million Scheme: Designated AD Category I banks are permitted to approve elongation of repayment period for loans raised under the erstwhile USD 5 Million Scheme, provided there is a consent letter from the overseas lender for such reschedulement and the reshedulement is without 26 any additional cost. Such approval with existing and revised repayment schedule along with the Loan Key/Loan Registration Number should be initially communicated to the Principal Chief General Manager, Foreign Exchange Department, ECB Division, Reserve Bank of India, Central Office, Mumbai within seven days of approval and subsequently in ECB 2 Return. 2.22 ECB arrangements prior to December 02, 2015: Entities raising ECB under the framework in force prior to December 02, 2015 can raise the said loans by March 31, 2016 provided the agreement in respect of the loan is already signed by the date the new framework comes into effect. It is clarified that all ECB loan agreements entered into before December 02, 2015 may continue with the disbursement schedules as already provided in the loan agreements without requiring any further consent from the RBI or any AD Category I bank. For raising of ECB under the following carve outs, the borrowers will, however, have time up to March 31, 2016 to sign the loan agreement and obtain the LRN from the Reserve Bank by this date: i. ECB facility for working capital by airlines companies; ii. ECB facility for consistent foreign exchange earners under the USD 10 billion Scheme; and iii. ECB facility for low cost affordable housing projects (low cost affordable housing projects as defined in the extant Foreign Direct Investment policy) 2.22.1 ECB facility for Carve Outs: More information about the ECB facility for carve outs listed above at 2.22 is as under: 2.22.1.1 ECB facility for working capital by airlines companies: Airline companies registered under the Companies Act, 1956 and possessing scheduled operator permit license from DGCA for passenger transportation are eligible to raise ECB. Such ECBs will be allowed based on the cash flow, foreign exchange earnings and the capability to service the debt. The ECBs can be raised with a minimum average maturity period of three years and will be subject to the following terms and conditions: i. The overall ECB ceiling for the entire civil aviation sector would be USD one billion and the maximum permissible ECB that can be availed by an individual airline company will be USD 300 million. ii. This limit can be utilized for working capital as well as refinancing of the outstanding working capital Rupee loan(s) availed of from the domestic banking system. 27  iii. ECB availed for working capital/refinancing of working capital as above will not be allowed to be rolled over. iv. The foreign exchange for repayment of ECB should not be accessed from Indian markets and the liability should be extinguished only out of the foreign exchange earnings of the borrowing company. 2.22.1.2 ECB facility for consistent foreign exchange earners under the USD 10 billion Scheme: Indian companies in the manufacturing, infrastructure sector and hotel sector (with a total project cost of INR 250 crore or more irrespective of geographical location for hotel sector), can raise ECBs for repayment of outstanding Rupee loans availed of for capital expenditure from the domestic banking system and/ or fresh Rupee capital expenditure subject to the following terms and conditions: i. The borrower should be consistent foreign exchange earners during the past three financial years and should not be in the default list/caution list of the Reserve Bank of India. ii. The maximum permissible ECB that can be availed of by an individual company will be limited to 75 per cent of the average annual export earnings realized during the past three financial years or 50 per cent of the highest foreign exchange earnings realized in any of the immediate past three financial years, whichever is higher. In case of Special Purpose Vehicles (SPVs), which have completed at least one year of existence from the date of incorporation and do not have sufficient track record/past performance for three financial years, the maximum permissible ECB that can be availed of will be limited to 50 per cent of the annual export earnings realized during the past financial year. iii. The foreign exchange for repayment of ECB should not be accessed from Indian markets and the liability arising out of ECB should be extinguished only out of the foreign exchange earnings of the borrowing company. iv. The overall ceiling for such ECBs shall be USD10 (ten) billion and the maximum ECB that can be availed by an individual company or group, as a whole, under this scheme will be restricted to USD 3 billion. v. Within the overall ceilings given above, Indian companies in the aforesaid three sectors which have established Joint Venture (JV)/ Wholly Owned Subsidiary (WOS) / have acquired assets overseas in compliance with extant 28  regulations under FEMA can raise ECB for repayment of all term loans having average residual maturity of 5 years and above and credit facilities availed of from domestic banks for overseas investment in JV/WOS, in addition to Capital Expenditure. The maximum permissible ECB that can be availed of by an individual company will be limited to 75 per cent of the average annual export earnings realized during the past three financial years or 75 per cent of the assessment made about the average foreign exchange earnings potential for the next three financial years of the Indian companies from the JV/ WOS/ assets abroad as certified by Statutory Auditors/ Chartered Accountant/ Certified Public Accountant/ Category I Merchant Banker registered with SEBI/ an Investment Banker outside India registered with the appropriate regulatory authority in the host country. The past earnings in the form of dividend/repatriated profit/ other forex inflows like royalty, technical know-how, fee, etc. from overseas JV/WOS/assets will be reckoned as foreign exchange earnings for the purpose. vi. Under the USD 10 billion scheme, ECB cannot be raised from overseas branches / subsidiaries of Indian banks. 2.22.1.3 ECB facility for low cost affordable housing projects: The terms and conditions for the ECB facility for low cost affordable housing projects are as under: i. For the purpose of ECB, a low cost affordable housing project is as defined in the extant foreign direct investment policy ii. ECB proceeds shall not be utilized for acquisition of land. iii. Developers/builders registered as companies may raise ECB for low cost affordable housing projects provided they have minimum 3 years’ experience in undertaking residential projects, have good track record in terms of quality and delivery and the project and all necessary clearances from various bodies including Revenue Department with respect to land usage/environment clearance, etc., are available on record. They should also not have defaulted in any of their financial commitments to banks/ financial institutions or any other agencies and the project should not be a matter of litigation. Builders/ developers meeting the eligibility criteria shall have to apply to the National Housing Bank (NHB) in the prescribed format. NHB shall act as the nodal agency for deciding a project’s eligibility as a low cost affordable housing project, and on being satisfied, forward the application to the Reserve Bank 29  for consideration under the approval route. Once NHB decides to forward an application for consideration of RBI, the prospective borrower (builder/developer) will be advised by the NHB to approach RBI for availing ECB through his Authorised Dealer in the prescribed format. iv. The ECB should be swapped into Rupees for the entire maturity on fully hedged basis. v. Housing Finance Companies (HFCs) registered with the National Housing Bank (NHB) and operating in accordance with the regulatory directions and guidelines issued by NHB are eligible to avail of ECB for financing low cost affordable housing units. The minimum Net Owned Funds (NOF) of HFCs for the past three financial years should not be less than INR 300 crore. Borrowing through ECB should be within overall borrowing limit of 16 (sixteen) times of their Net Owned Fund (NOF) and the net non-performing assets (NNPA) should not exceed 2.5% of the net advances. The maximum loan amount sanctioned to the individual buyer will be capped at INR 25 lakh subject to the condition that the cost of the individual housing unit shall not exceed INR 30 lakh. HFCs while making the applications, shall submit a certificate from NHB that the availment of ECB is for financing prospective owners of individual units for the low cost affordable housing and ensure that the interest rate spread charged by them to the ultimate buyer is reasonable. vi. NHB is also eligible to raise ECB for financing low cost affordable housing units of individual borrowers. Further, in case, a developer of low cost affordable housing project not being able to raise ECB directly as envisaged above, National Housing Bank is permitted to avail of ECB for on-lending to such developers which satisfy the conditions prescribed to developers / builders subject to the interest rate spread set by RBI. vii. Interest rate spread to be charged by NHB may be decided by NHB taking into account cost and other relevant factors. NHB shall ensure that interest rate spread for HFCs for on-lending to prospective owners’ of individual units under the low cost affordable housing scheme is reasonable. viii. Developers/ builders/ HFCs/ NHB will not be permitted to raise Foreign Currency Convertible Bonds (FCCBs) under this scheme. ix. An aggregate limit of USD 1(one) billion each for the financial years 2013-14, 2014-15 and 2015-16 is fixed for ECB under the low cost affordable housing 30  scheme which includes ECBs to be raised by developers/builders and NHB/specified HFCs. 41 2.23 ECB facility for Startups : AD Category-I banks are permitted to allow Startups to raise ECB under the automatic route as per the following framework: 2.23.1 Eligibility: An entity recognised as a Startup by the Central Government as on date of raising ECB will be eligible under the facility. 2.23.2 Maturity: Minimum average maturity period will be 3 years. 2.23.3 Recognised lender: Lender / investor shall be a resident of a country who is either a member of Financial Action Task Force (FATF) or a member of a FATF- Style Regional Bodies; and shall not be from a country identified in the public statement of the FATF as: i. A jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or ii. A jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies Exclusion: Overseas branches/subsidiaries of Indian banks and overseas wholly owned subsidiary / joint venture of an Indian company will not be considered as recognized lenders under this framework. 2.23.4 Forms: The borrowing can be in form of loans or non-convertible, optionally convertible or partially convertible preference shares. 2.23.5 Currency: The borrowing should be denominated in any freely convertible currency or in Indian Rupees (INR) or a combination thereof. In case of borrowing in INR, the non-resident lender, should mobilise INR through swaps/outright sale undertaken through an AD Category-I bank in India. 2.23.6 Amount: The borrowing per Startup will be limited to USD 3 million or equivalent per financial year either in INR or any convertible foreign currency or a combination of both. 2.23.7 All-in-cost: Shall be mutually agreed between the borrower and the lender. 2.23.8 End uses: For any expenditure in connection with the business of the borrower. 41 Inserted vide A. P (DIR Series) Circular No. 13 dated October 27, 2016 31 2.23.9 Conversion into equity: Conversion of ECB into equity is freely permitted subject to Regulations applicable for foreign investment in Startups. 2.23.10 Security: The choice of security to be provided to the lender is left to the borrowing entity. Security can be in the nature of movable, immovable, intangible assets (including patents, intellectual property rights), financial securities, etc. and shall comply with foreign direct investment / foreign portfolio investment / or any other norms applicable for foreign lenders / entities holding such securities. 2.23.11 Corporate and personal guarantee: Issuance of corporate or personal guarantee is allowed. Guarantee issued by a non-resident(s) is allowed only if such parties qualify as lender under paragraph 2.23.3 above. Exclusion: Issuance of guarantee, standby letter of credit, letter of undertaking or letter of comfort by Indian banks, all India Financial Institutions and NBFCs is not permitted. 2.23.12 Hedging: The overseas lender, in case of INR denominated ECB, will be eligible to hedge its INR exposure through permitted derivative products with AD Category – I banks in India. The lender can also access the domestic market through branches/ subsidiaries of Indian banks abroad or branches of foreign bank with Indian presence on a back to back basis. Note: Startups raising ECB in foreign currency, whether having natural hedge or not, are exposed to currency risk due to exchange rate movements and hence are advised to ensure that they have an appropriate risk management policy to manage potential risk arising out of ECBs. 2.23.13 Conversion rate: In case of borrowing in INR, the foreign currency - INR conversion will be at the market rate as on the date of agreement. 2.23.14 Other Provisions: Other provisions like parking of ECB proceeds, reporting arrangements, powers delegated to AD banks, borrowing by entities under investigation, conversion of ECB into equity will be as included under various paragraphs upto 2.20 above. However, provisions on leverage ratio and ECB liability: Equity ratio will not be applicable. 42 2.24. ECB facility for Oil Marketing Companies: Notwithstanding the provisions contained in paragraphs 2.4.5 (d), 2.4.6 (i) (a) and 2.5 above, Public Sector Oil Marketing Companies (OMCs) can raise ECB for working capital purposes with minimum average maturity period of 3/5 years as per paragraph 2.4.1 (ii)/(iii) 42 Inserted vide A. P. (DIR Series) Circular No. 10 dated October 03, 2018 32 respectively from all recognized lenders under the automatic route without mandatory hedging requirements. The overall ceiling for such ECBs shall be USD 10 billion or equivalent. However, OMCs should have a Board approved forex mark to market procedure and prudent risk management policy, for such ECBs. All other provisions under the ECB framework will be applicable to such ECBs. 3. Framework for issuance of Rupee denominated bonds overseas 3.1 Form of borrowing: The framework for issuance of Rupee denominated bonds overseas enables eligible resident entities to issue only plain vanilla Rupee denominated bonds issued overseas in a Financial Action Task Force (FATF) compliant financial centres. The bonds can be either placed privately or listed on exchanges as per host country regulations. 3.2 Available route 43 of borrowing: 44 Any proposal of borrowing by eligible Indian entities for issuance of these bonds will be examined at Foreign Exchange Department, Central Office, Mumbai and such request should be forwarded through AD bank only. 45 46 47 3.3 Parameters of borrowing by issuance of Rupee denominated bonds: Various parameters for raising loan under the Framework for issuance of Rupee denominated bonds overseas are given below: 48 3.3.1 Minimum Maturity: Minimum original maturity period for Rupee denominated bonds raised up to USD 50 million equivalent in INR per financial year should be 3 years and for bonds raised above USD 50 million equivalent in INR per financial year should be 5 years. 49. The call and put option, if any, shall not be exercisable prior to completion of minimum maturity. 3.3.2 Eligible borrowers: Any corporate or body corporate is eligible to issue such bonds. REITs and INVITs coming under the regulatory framework of the SEBI are also eligible. 43 Deleted vide A. P. (DIR Series) Circular No. 47 dated June 07, 2017 Deleted portion read as “s and limits” 44 Inserted vide A. P. (DIR Series) Circular No. 47 dated June 07, 2017 45 Deleted vide A. P. (DIR Series) Circular No. 47 dated June 07, 2017 46 Inserted vide A.P.(DIR Series) Circular No 60 dated April 13, 2016 47 Deleted vide A.P.(DIR Series) Circular No. 6 dated September 22, 2017 Deleted portion read as “Issuance of Rupee denominated bonds overseas will be within the aggregate limit of INR 2443.23 billion for foreign investment in corporate debt,” 48 Inserted vide A. P. (DIR Series) Circular No. 47 dated June 07, 2017 49 Deleted vide A. P. (DIR Series) Circular No. 47 dated June 07, 2017 Deleted portion read as “The bonds shall have minimum maturity of three years” 33  50 3.3.2.1 Indian banks as eligible borrowers: Indian banks will also be eligible to issue Rupee denominated bonds overseas by way of the following instruments, subject to conforming to the provisions contained in the Master Circular DBR.No.BP.BC.1/21.06.201/2015-16 dated July 01, 2015 on ‘Basel III Capital Regulations’ and Circular DBOD.BP.BC.No. 25/08.12.014/2014-15 dated July 15, 2014 on ‘Guidelines on Issue of Long Term Bonds by Banks – Financing of Infrastructure and Affordable Housing’ issued by the Reserve Bank and as amended from time to time: i. Perpetual Debt Instruments (PDI) qualifying for inclusion as Additional Tier 1 capital and debt capital instruments qualifying for inclusion as Tier 2 capital; and ii. Long term Rupee Denominated Bonds overseas for financing infrastructure and affordable housing. 3.3.3 Recognised Investors: 51The Rupee denominated bonds can only be issued in a country and can only be subscribed by a resident of a country: i. that is a member of Financial Action Task Force (FATF) or a member of a FATF-Style Regional Body; and ii. whose securities market regulator is a signatory to the International Organization of Securities Commission's (IOSCO’s) Multilateral Memorandum of Understanding (Appendix A Signatories) or a signatory to bilateral Memorandum of Understanding with the Securities and Exchange Board of India (SEBI) for information sharing arrangements; and iii. should not be a country identified in the public statement of the FATF as: (i) A jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or (ii) A jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies. 52 Further, Multilateral and Regional Financial Institutions where India is a member country will also be considered as recognised investors. 53 However, related party within the meaning as given in Ind-AS 24 cannot subscribe or invest in or purchase such bonds. Indian banks, 54subject to applicable prudential 50 Inserted vide A.P.(DIR Series) Circular No 14 dated November 3, 2016 51 Replaced vide A.P.(DIR Series) Circular No 60 dated April 13, 2016. Prior to the replacement it read as: “Any investor from a FATF compliant jurisdiction can invest in the bonds issued under the Framework.” 52 Inserted vide A. P. (DIR Series) Circular No. 31 dated February 16, 2017. 53 Inserted vide A. P. (DIR Series) Circular No. 47 dated June 07, 2017 34 norms, can 55participate as arrangers/underwriters/market makers/traders in RDBs issued overseas. 56 57However, underwriting by overseas branches/subsidiaries of Indian banks for issuances by Indian banks will not be allowed. 58 59 3.3.4 All-in-Cost: The all-in-cost ceiling for such bonds will be 450 basis points over the prevailing yield of the Government of India securities of corresponding maturity. 60 3.3.5 End-use Prescriptions: The proceeds of the borrowing can be used for all purposes except for the following: i. Real estate activities other than development of integrated township / affordable housing projects; ii. Investing in capital market and using the proceeds for equity investment domestically; iii. Activities prohibited as per the foreign direct investment guidelines; iv. On-lending to other entities for any of the above purposes; and v. Purchase of Land 3.3.6 Exchange Rate for conversion: The exchange rate for foreign currency – Rupee conversion shall be the market rate on the date of settlement for the purpose of transactions undertaken for issue and servicing of the bonds 3.3.7 Hedging: The overseas investors are eligible to hedge their exposure in Rupee through permitted derivative products with AD Category I banks in India. The investors can also access the domestic market through branches / subsidiaries of Indian banks abroad or branches of foreign banks with Indian presence on a back to back basis. 3.3.8 Leverage Ratio: The borrowing by financial institutions under the Framework shall be subject to the leverage ratio prescribed, if any, by the sectoral regulator as per the prudential norms. 61 62 54 Deleted the words “shall not have access to these bonds but” vide A.P.(DIR Series) Circular No 14 dated November 3, 2016 55 Inserted vide A. P. (DIR Series) Circular No. 9 dated September 19, 2018 56 Deleted the words “In case of an Indian bank underwriting an issue, its holding cannot be more than 5 per cent of the issue size after 6 months of issue” vide A. P. (DIR Series) Circular No. 9 dated September 19, 2018 57 Inserted vide A.P.(DIR Series) Circular No 14 dated November 3, 2016 58 Inserted vide A. P. (DIR Series) Circular No. 47 dated June 07, 2017 59 Modified vide A.P. (DIR Series) Circular No.25 dated April 27, 2018. Prior to modification it read as “300”. 60 Deleted vide A. P. (DIR Series) Circular No. 47 dated June 07, 2017 Deleted portion read as “The all-in-cost of borrowing by issuance of Rupee denominated bonds should be commensurate with prevailing market conditions”. 35  63 3.3.9 Other provisions: Other provisions of ECB framework given under 64 65 paragraph 2 above, obtaining LRN, reporting, parking of proceeds, security / guarantee for the borrowings, conversion into equity, corporates under investigation, etc. will be applicable for borrowing under the Framework of issuance of Rupee 66 denominated bonds overseas. Borrowers issuing Rupee denominated bonds overseas should incorporate clause in the agreement / offer document so as to enable them to obtain the list of primary bond holders and provide the same to the regulatory authorities in India as and when required. The agreement / offer document should also state that the bonds can only be sold / transferred / offered as security overseas subject to compliance with aforesaid IOSCO / FATF jurisdictional requirements. PART II 4. Routing of funds raised abroad to India: It may be noted that: i. Indian companies or their ADs are not allowed to issue any direct or indirect guarantee or create any contingent liability or offer any security in any form for such borrowings by their overseas holding / associate / subsidiary / group companies except for the purposes explicitly permitted in the relevant Regulations. ii. Further, funds raised abroad by overseas holding / associate / subsidiary / group companies of Indian companies with support of the Indian companies or their ADs as mentioned at (i) above cannot be used in India unless it conforms to the general or specific permission granted under the relevant Regulations. iii. Indian companies or their ADs using or establishing structures which contravene the above shall render themselves liable for penal action as prescribed under FEMA. 61 Inserted vide A.P.(DIR Ser