REGULATORY PROVISIONS UNDER ECB

External commercial borrowing (ECBs) are loans in India made by non-resident lenders in foreign currency to Indian
borrowers. They are used widely in India to facilitate access to foreign money by Indian corporations and PSUs (public
sector undertakings). External Commercial Borrowings (ECB) form part of debt structure of Balance Sheet of Company
and separate regulation Foreign Exchange Management (Borrowing and Lending) Regulations, 2018, is framed by RBI
for this.

Under the ECB framework, ECB can be raised either under the automatic route or under the approval route. Under the
Automatic Route, the foreign investor or the Indian company does not require any approval from RBI or Government of
India for the investment. Under the Government Route, prior approval of the Government of India, Ministry of Finance,
Foreign Investment Promotion Board (FIPB) is required.

Before raising ECB, it is important the check the activities for which ECB are not allowed. These activities include:

a) Real estate activities: Real estate activities means real estate activity involving own or leased property, for buying,
selling and renting of commercial and residential properties or land and also includes activities either on a fee or contract
basis assigning real estate agents for intermediating in buying, selling, letting or managing real estate. However, this
would not include,

(i) construction/development of industrial parks/integrated townships/SEZ

(ii) purchase/long term leasing of industrial land as part of new project/modernisation of expansion of existing units
and

(iii) any activity under ‘infrastructure sector’ definition.

b) Investment in capital market.

c) Equity investment.

d) Working capital purposes, except as allowed specifically.

e) General corporate purposes, except as allowed specifically.

f) Repayment of Rupee loans, except as allowed specifically.

g) On-lending to entities for the above activities, except as allowed specifically.

So, the eligible lenders are:

The primary requirement for eligible lender is that the lender should be resident of Financial Action Task Force (FATF)
or The International Organisation of Securities Commission (IOSCO) compliant country, including on transfer of ECB.

However, a) Multilateral and Regional Financial Institutions where India is a member country will also be considered as
recognised lenders
b) Individuals as lenders can only be permitted if they are foreign equity holders or for subscription to bonds/debentures
listed abroad.

Foreign equity holder means;

i. direct foreign equity holder with minimum 25% direct equity holding in the borrowing entity,
ii. indirect equity holder with minimum indirect equity holding of 51%, or
iii. group company with common overseas parent and

c) Foreign branches / subsidiaries of Indian banks are permitted as recognised lenders only for FCY ECB (except FCCBs
and FCEBs). Foreign branches / subsidiaries of Indian banks, subject to applicable prudential norms, can participate as
arrangers/underwriters/market-makers/traders for Rupee denominated Bonds issued overseas. However, underwriting by
foreign branches/subsidiaries of Indian banks for issuances by Indian banks will not be allowed

Eligible borrowers can be explained in two parts:

Part I: In case of FCY denominated ECB, eligible borrowers include: All entities eligible to receive FDI. Further, the
following entities are also eligible to raise ECB:

i. Port Trusts

ii. Units in SEZ

iii. SIDBI

iv. EXIM Bank of India.

Part II: In case of INR denominated ECB

a) All entities eligible to raise FCY ECB and

b) Registered entities engaged in micro-finance activities, viz., registered Not for Profit companies, registered
societies/trusts/ cooperatives and Non-Government Organisations.

Now, after ascertaining the eligibility, the next step to check the minimum time period for which ECB can be raised. This
is also called as Minimum Average Maturity Period (MAMP). The minimum average maturity period for ECB is
generally three years. However, for the specific categories, the minimum average maturity period will be different.

a. ECB raised by manufacturing companies up to USD 50 million or its equivalent per financial year, minimum average
maturity period will one year only;

b. ECB raised for (i). working capital purposes or general corporate purposes (ii). On-lending by NBFCs for working
capital purposes or general corporate purposes; the minimum average maturity period will ten years;

c. ECB raised from foreign equity holder for working capital purposes, general corporate purposes or for repayment of
Rupee loans, the minimum average maturity period will five years;
d. ECB raised for (i) repayment of Rupee loans availed domestically for capital expenditure (ii) on-lending by NBFCs for
the same purpose the minimum average maturity period will seven years;

e. ECB raised for (i) repayment of Rupee loans availed domestically for purposes other than capital expenditure (ii) on-
lending by NBFCs for the same purpose the minimum average maturity period will ten years

It is cleared that ECB can be raised either in FCY denomination or in INR denomination. However, we should also
understand the limit up to which Companies / LLP can raise ECB. All eligible borrowers can raise ECB up to USD 750
million or equivalent per financial year under the automatic route. Further, in case of FCY denominated ECB raised from
direct foreign equity holder, ECB liability-equity ratio for ECB raised under the automatic route cannot exceed 7:1.

ALL-IN-COST:

The RBI, under the 2022 ECB Circular, has enhanced the all-in-cost ceiling for ECBs availed till 31 December 2022.
Under the extant regulations, the all-in-cost ceiling for new foreign currency (FCY) ECBs was Benchmark + 500 basis
points and that for Indian Rupee (INR) denominated ECBs, the same stood at Benchmark + 450 basis points.

REGULATORY PROVISIONS W.R.T. EXPORTS

Declaration of exports:-

(1) In case of exports taking place through Customs manual ports, every exporter of goods or software in physical form or
through any other form, either directly or indirectly, to any place outside India, other than Nepal and Bhutan, shall furnish
to the specified authority, a declaration in one of the forms set out in the Schedule and supported by such evidence as may
be specified, containing true and correct material particulars including the amount representing

(i) the full export value of the goods or software or

(ii) if the full export value is not ascertainable at the time of export, the value which the exporter, having regard to the
prevailing market conditions expects to receive on the sale of the goods or the software in overseas market, and affirms in
the said declaration that the full export value of goods (whether ascertainable at the time of export or not) or the software
has been or will within the specified period be, paid in the specified manner.

(2) Declarations shall be executed in sets of such number as specified.

(4) Realization of export proceeds in respect of export of goods / software from third party should be duly declared by the
exporter in the appropriate declaration form.

 Exemptions:-

Notwithstanding anything contained in Regulation 3, export of goods / software may be made without furnishing the
declaration in the following cases, namely:

a) trade samples of goods and publicity material supplied free of payment;

b) personal effects of travellers, whether accompanied or unaccompanied;

c) ship's stores, trans-shipment cargo and goods supplied under the orders of Central Government or of such officers as
may be appointed by the Central Government in this behalf or of the military, naval or air force authorities in India for
military, naval or air force requirements;

d) by way of gift of goods accompanied by a declaration by the exporter that they are not more than five lakh rupees in
value

e) aircrafts or aircraft engines and spare parts for overhauling and/or repairs abroad subject to their reimport into India
after overhauling /repairs, within a period of six months from the date of their export;

Indication of importer-exporter code number:-

The importer-exporter code number allotted by the Director General of Foreign Trade under Section 7 of the Foreign
Trade (Development & Regulation) Act, 1992 (22 of 1992) shall be indicated on all copies of the declaration forms
submitted by the exporter to the specified authority

Period within which export value of goods/software/ services to be realised:-

(1) The amount representing the full export value of goods / software/ services exported shall be realised and repatriated
to India within 3nine months or within such period as may be specified by the Reserve Bank, in consultation with the
Government, from time to time, from the date of export, provided
(a) that where the goods are exported to a warehouse established outside India with the permission of the Reserve Bank,
the amount representing the full export value of goods exported shall be paid to the authorised dealer as soon as it is
realised and in any case within 3fifteen months or within such period as may be specified by the Reserve Bank, in
consultation with the Government, from time to time from the date of shipment of goods

REGULATORY PROVISIONS W.R.T. IMPORTS

1. Legal status

(i) Imports of goods and services are permitted under section 5 of the FEMA,

(ii) These provisions are notified through notification no. G.S.R. 381(E) dated May 3, 2000 Foreign Exchange
Management (Current Account Transaction) Rules, 2000.

(iii) These provisions are amended from time to time to incorporate the changes in the regulatory framework and
published through various amendment notifications

2. Role of Directorate General of Foreign Trade (DGFT)

Imports of goods and services under the FEMA are being regulated by DGFT as working under Ministry of Commerce
and Industry, Department of Commerce in Government of India.

3. Role of AD banks

(i) AD Banks are required to ensure that the imports should be in conformity with the Foreign Trade Policy (FTP) in force
and also with Foreign Exchange Management (Current Account Transactions) Rules, 2000 as framed by the Government
of India

(ii) AD Banks are further required to advise to the importers for ensuring the compliances with the provisions of the
Income Tax Act, 1961 and the Companies Act, 2013 is any applicable

(iii) AD Banks are further required to follow the normal banking procedures

(iv) AD Banks are also required to approach the RBI in any matter which are not in the powers of AD Banks through
approaching to the regional office (RO) of the Foreign Exchange Department as situated in the jurisdiction where
Importers are residing, the firms or companies are functioning

4. Licences for Import of goods and services

(i) AD Banks are required to have a licence as issued under FTP where goods and services as being imported are
under in negative list of FTP
(ii) (ii) AD Banks are further required to open LC and allow the remittances for the imports of goods and services.
5. Time Limit for the Settlements of Payments against imports

(i) Time limit for the normal payments

(a) 100% remittances are to be completed within a maximum period 6 months commencing from date of shipments.

(b) However importers are permitted to withheld an amount towards guarantee of performance etc. and disruptions due to
outbreak like COVID-19

(c) Now 100% remittances are to be completed within a maximum period 12 months commencing from July 31, 2020.

(ii) Time Limit for the Deferred Payments Arrangements

(a) AD Banks are permitted 100% remittances are to be completed within a maximum period of 5 years under the
deferred payments arrangements, suppliers credits or buyers credits
(b) Deferred payment arrangements suppliers credits or buyers credits are known as external commercial borrowings
(ECBs) and trade credits. Hence these are regulated through ECBs guidelines as issued by the RBI.

(iii) Time Limit for the Import of Books

 AD Banks are permitted 100% remittances are to be completed without any restriction on number of years along
with interest payments for entire period of outstanding.

6.Extension for the time line

(a) AD Banks are permitted to grant extension for the time line against settlement of imports dues up to 6 months at a
time and maximum up to 3 years.
(b) Hence 5 additional extensions equivalent to 30 months are permitted.
(c) The RBI has issued sector wise specific guidelines for extension of time. Generally sector wise specific the RBI
guidelines are applicable for imports of rough, cut and polished diamonds.