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RBI/2016-17/103
A.P. (DIR Series) Circular No. 13
October 27, 2016
To
All Category-I Authorised Dealer Banks
Madam / Dear Sir
External Commercial Borrowings (ECB) by
Startups
Attention of Authorized Dealer Category-I (AD Category-I) banks is invited to
the announcement made by the Reserve Bank in the Fourth Bi-monthly Monetary
Policy Statement for the year 2016-17 released on October 04, 2016, for
permitting Startup enterprises to access loans under ECB framework.
2. Parameters for considering an entity as a Startup have since been
published in the Official Gazette on February 18, 2016 by the Government of
India. It is therefore decided, in consultation with the Government of India to
permit AD Category-I banks to allow Startups to raise ECB under the following
framework:
a. Eligibility: An entity recognised as a Startup
by the Central Government as on date of raising ECB.
b. Maturity: Minimum average maturity period will
be 3 years.
c. 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:
-
A jurisdiction having a strategic Anti-Money Laundering or Combating the
Financing of Terrorism deficiencies to which counter measures apply; or
-
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, however, not be considered as recognized lenders under this
framework.
d. Forms: The borrowing can be in the form of loans
or non-convertible, optionally convertible or partially convertible preference
shares. The funds should come from a country which fulfils the conditions at 2
(c) above.
e. 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.
f. 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.
g. All-in-cost: Shall be mutually agreed between
the borrower and the lender.
h. End-uses: For any expenditure in connection with
the business of the borrower.
i. Conversion into equity: Conversion into equity
is freely permitted, subject to Regulations applicable for foreign investment in
Startups.
j. 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.
k. Corporate and personal guarantee: Issuance of
corporate or personal guarantee is allowed. Guarantee issued by non-resident(s)
is allowed only if such parties qualify as lender under paragraph 2(c) 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.
l. 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.
m. 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.
3. 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 in the ECB framework announced
vide
A.P. (DIR Series) Circular No. 32 dated November 30, 2015. However,
provisions on leverage ratio and ECB liability: Equity ratio will not be
applicable.
4. It may be noted that 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.
5. AD Category-I banks may bring the contents of this circular to the notice
of their constituents and customers.
6. Master Direction No.5 dated January 1, 2016 is being updated to reflect
changes.
7. The directions contained in this circular has been issued under section
10(4) and 11(2) of the Foreign Exchange Management Act, 1999 (42 of 1999) and
are without prejudice to permissions / approvals, if any, required under any
other law.
Yours faithfully
(A.K. Pandey)
Chief General Manager
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