RBI/2011-12/204
A.P. (DIR Series) Circular No. 29
September 26, 2011
To
All Authorised Dealer Category I Banks
Madam / Sir,
External Commercial Borrowings (ECB) from the
foreign equity holders
Attention of Authorized Dealer Category-I (AD Category-I) banks is invited to
the Foreign Exchange Management (Borrowing or lending in foreign exchange)
Regulations, 2000, notified vide
Notification No. FEMA 3/2000-RB dated May 3,
2000, amended from time to time and the
A.P. (DIR Series) Circular No. 5 dated
August 1, 2005, amended from time to time relating to the External Commercial
Borrowings (ECB).
- As per the extant ECB policy, a ‘foreign equity holder’ to be eligible as
‘recognised lender’ under the automatic route would require minimum holding of
paid-up equity in the borrower company as set out below:
- for ECB up to USD 5 million – minimum paid-up equity of 25 per cent held
directly by the lender,
- for ECB more than USD 5 million – minimum paid-up equity of 25 per cent
held directly by the lender and debt-equity ratio not exceeding 4:1 (i.e. the
proposed ECB does not exceeds four times the direct foreign equity holding).
- To further rationalize the policy in this regard, the following
clarifications are being issued:-
- Now onwards the term 'debt' in the debt-equity ratio will be replaced
with 'ECB liability' and the ratio will be known as 'ECB liability'-equity ratio
to make the term signify true position as other borrowings/debt are not
considered in working out this ratio;
- The paid-up capital contributed by the foreign equity holder is considered
under the extant guidelines for the purpose of calculation of equity for ECBs of
or beyond USD 5 million from direct foreign equity holders. Henceforth, besides
the paid-up capital, free reserves (including the share premium received in
foreign currency) as per the latest audited balance sheet shall be reckoned for
the purpose of calculating the equity of the foreign equity holder. Where there
are more than one foreign equity holder 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 ECB liability-equity ratio for
reckoning quantum of permissible ECB.
- For calculating the ECB liability, not only the proposed borrowing but
also the outstanding ECB from the same foreign equity holder lender should be
reckoned.
Further guidelines
- To benefit eligible borrowers, it has been decided, in consultation with
the Government of India, to consider the ECB proposals from foreign equity
holders (direct/indirect) and group companies under the approval route as
under:-
- Service sector units, in addition to those in hotels, hospitals and
software, could also be considered as eligible borrowers if the loan is obtained
from foreign equity holders. This would facilitate borrowing by training
institutions, R &D, miscellaneous service companies, etc;
- ECB from indirect equity holders may be considered provided the indirect
equity holding by the lender in the Indian company is at least 51 per cent ; and
- ECB from a group company may also be permitted provided both the borrower
and the foreign lender are subsidiaries of the same parent.
- While submitting these proposals, it may be ensured that total outstanding
stock of ECBs (including the proposed ECBs) from a foreign equity lender does
not exceed 7 times the equity holding, either directly or indirectly of the
lender (in case of lending by a group company, equity holdings by the common
parent would be reckoned).
- All other aspects of the ECB policy, such as, maximum permissible limit per
company per financial year under the automatic route, eligible borrower,
end-use, all-in-cost ceiling, average maturity period, prepayment, refinancing
of existing ECB and reporting arrangements shall remain unchanged.
- AD Category - I banks may bring the contents of this circular to the notice
of their constituents and customers.
- The directions contained in this circular have been issued under sections
10(4) and 11(1) 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,
(Rashmi Fauzdar)
Chief General Manager