CHANGES IN THE ECB GUIDELINES

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Taking into account changes in external financial markets, requirements of corporates and with a view to liberalising further the External Commercial Borrowings (ECB) approvals, the Government has decided to make the following changes in the ECB Guidelines:

1. Recognized lender:

Applicants will be free to raise ECB from any internationally recognized source such as banks, export credit agencies, suppliers of equipment, foreign collaborators, foreign equity holders, international capital markets etc. Offers from unrecognized sources will not be entertained and this would also be applicable for ECBs below US$ 5 million.

2. Prepayment of ECBs

Prepayment of ECBs has been delegated to RBI. It is now proposed that prepayment of ECBs will be permitted without any limit and also without any of the existing conditions given in para 1(a) to (d) of RBI’s A.P (DIR Series) Circular No. 8 dated August 5, 2002. This window of prepayment would be effective upto March 31, 2003. It would also be subject to review keeping in view the market conditions. The Reserve Bank of India will issue necessary Press Note incorporating the above revised prepayment guidelines.

3. Deletion of end-use restrictions in respect of investments in real estate Sector.

It has been decided to drop the restrictions of end-use for ECB proceeds for investment in real estate sector. Henceforth, ECB could be raised for the development of integrated townships as defined by Ministry of Commerce & Industry, Department of Industrial Policy & Promotion SIA (FC Division) Press Note 3 (2002 series. Dated 04.01.02). On the issue of maturity for such ECBs, it has been decided that the existing maturity guidelines would be applicable.

4. Maximum eligibility under auto-route and corresponding maturity.

In terms of ECB guidelines, it has been decided that:

1. A borrower can raise up to a maximum of US$ 50 Million under auto-route during a given financial year;
2. In case a borrower decides to raise more than one ECB in a given financial year for the ECBs upto US$ 20 Million the minimum average maturity would be three years. For amounts in excess of US$ 20 Million, the average maturity would need to be five years

2. Ineligibility of Trust and non-profit making organisations to access ECBs

The issue of eligibility of Trust and non-profit making organisations to access ECB was considered and it has been decided that there would be no change in the current ECB policy and Trusts/non-profit making organisations would continue to be ineligible to raise ECBs

3. Removal of restrictions on ECBs being raised by the Units in Special Economic Zones (SEZs).

In the EXIM policy for 2002-2007 announced on March 31, 2002 it has been indicated that units in SEZs will be permitted to avail all ECBs for maturity of less than 3 years. To operationalise this decision of the Government conveyed through the EXIM policy the following amendments are proposed for units in SEZs.

1. Units in SEZs may be allowed to raise External Commercial Borrowings without any maturity restriction but through recognized banking channels and strictly on a "stand alone basis".
2. By "stand alone" it is meant that units in the SEZs would be completely isolated from financial contacts with their subsidiaries or their parent in the mainland or within the SEZs as far as repayment of ECB interest/principal is concerned. Therefore, in effect only those units, which are either subsidiary/branch of a company registered outside India or where a company is registered independently for operating in one or more zone in the country, would qualify for stand along criteria. Borrowers in the SEZs are to be allowed to raise ECB under the special window as announced in the EXIM Policy. They would service the loan (principal + Interest + any other fee, charge etc.) out of proceeds generated by the SEZ units.
3. There would be an annual cap of US$ 500 million for such units in SEZs to avail this facility. Reserve Bank of India (RBI) would monitor the overall cap. Necessary Guidelines will be issued by RBI in this regard.
4. Treatment of debt:

1. According to IMF classification the debts incurred by units in SEZs would be treated as external debt of India.
2. However, this debt would be separately and uniquely identified while explaining that the units in SEZs will not have access to the foreign exchange reserves of India for purposes of servicing the debt.

The above amendments would be effective from the date of issue of notification of such regulations/directions.

The Government had issued the Consolidated Guidelines on Policies and Procedures for External Commercial Borrowings in July 1999 and amendments to the said Guidelines were issued on February 9, 2000, June 14, 2000, September 1, 2000 and August 3, 2002.