The Reserve Bank of India (RBI) has rationalized the end-use provisions of External Commercial Borrowings (‘ECBs’) vide RBI/2019-20/20 A.P. (DIR series) Circular no. 04 dated July 30, 2019 (‘Circular’).
Key changes introduced by the RBI through the Circular are reproduced herein below:
1.) ECBs with a minimum average maturity period (‘MAMP’) of 10 (ten) years can now be utilized for working capital purposes and general corporate purposes.
Earlier, the ECB proceeds could be utilized for working capital purposes and general corporate purposes only if the ECB is availed from the foreign equity holder with a MAMP of 5 (five) years.
With this amendment, the Indian eligible borrowers can now get an immediate access to overseas long-term debt pool to fund their working capital and/or general corporate requirements without solely relying on either Indian lenders or equity holders of the company. Most importantly, NBFCs are also allowed to raise ECB for on-lending for the same purpose provided that the condition of MAMP is adhered to.
2.) ECBs with a MAMP of 7 (seven) years can be availed by eligible borrowers for repayment of Rupee loans availed domestically for capital expenditure as also by NBFCs for on lending for the same purpose. For repayment of Rupee loans availed domestically for purposes other than capital expenditure and for on-lending by NBFCs for the same, the minimum average maturity period of the ECB is required to be 10 years.
Earlier, the ECB proceeds could only be utilized for repayment of Rupee loans only if availed from the foreign equity holder with a MAMP of 5 (five) years.
3.) It has been decided to permit eligible corporate borrowers to avail ECB for repayment of Rupee loans availed domestically for capital expenditure in manufacturing and infrastructure sector if classified as SMA-2 or NPA, under any one-time settlement with lenders. Lender banks are also permitted to sell, through assignment, such loans to eligible ECB lenders, except foreign branches/ overseas subsidiaries of Indian banks, provided, the resultant external commercial borrowing complies with all-in-cost, MAMP and other relevant norms of the ECB framework.
Now with this exemption, the entire lot of companies engaged in the ailing manufacturing and infrastructure sector, gets an immediate access to foreign funds through ECB route without actually going down under the IBC. The promoters can now salvage their companies by accessing the pool of funds of various recognized lenders when they are undergoing the review period. The ECB lenders can also get a clear comfort as the entire loan can directly be assigned to them and the money can be used for repaying the rupee term loan lender without involving IBC.