Jan 27, 2012

External Commercial Borrowings – Simplification of procedure

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External Commercial Borrowings – Simplification of procedure

Over the past few months, several changes have been made by the Reserve Bank in the ECB norms as an attempt towards liberalizing the Borrowings in foreign currency. Continuing the past trend, further amendments have been introduced by the Reserve Bank vide A.P. (DIR Series) Circular No.69 and A.P. (DIR Series) Circular No.70 dated January 25, 2012.

The highlights of the circulars are discussed as under:

  • External Commercial Borrowings – Simplification of procedure

RBI vide its Circular No.69 has attempted towards improving work efficiency and to expedite procedures by delegating its power to AD category -I Banks for cancellation of Loan Request Number (LRN) as well as for Change in the end-use of ECB proceeds in order to simplify the approval procedure.

Earlier to this notification, for cancellation of LRN as well as change in end-use of ECB proceeds, the AD category -I was required to approach RBI (Foreign exchange Department) to obtain necessary approvals.

Now, as per amended norms, the designated AD category -I may directly approach to Department of Statistic and Information Management (DSIM) for cancellation of the LRN and approach for both approval and automatic route ECBs. RBI however has laid down following specified conditions to be fulfilled:

  1. No draw down for the said LRN has taken place, and
  2. The monthly ECB 2 returns till date in respect of the LRN have been submitted to (DSIM).

The designated AD is further authorized to approach to Department of Statistic and Information Management (DSIM) for change in end use of ECB proceeds subject to the following:

  1. The proposed end-use is permissible under the automatic route.
  2. There is no change in the other terms and conditions of the ECB.
  3. The ECB is in compliance with the extant guidelines.
  4. The monthly ECB-2 returns till date in respect of the LRN have been submitted to DSIM.
  5. Prompt reporting to DSIM and RBI in form 83.

For change in end use of ECBs availed under approval route, the approval would still be required from Foreign Exchange Department of RBI.

  • External Commercial Borrowings (ECB) Policy – Infrastructure Finance Companies (IFCs)

RBI had through its earlier notifications dated August 1, 2005 and May11, 2005, allowed the Non-Banking Finance Companies (NBFCs) categorized as Infrastructure Finance Companies (IFCs) to avail ECB (including outstanding of ECBs) up to 50 percent of their owned funds under the automatic route and above the limit of 50 percent under the approval route. The permitted end use had been for on-lending to infrastructure sector and IFCs are further required to hedge their currency risk in full.

Now, vide Circular no. 70, in addition to earlier requirements as to eligibility, permissible limits, end-use, prepayment, refinancing etc, the RBI has mandated the requirement of certificate of leverage ratio by designated AD category-I Bank in case of ECBs under approval route.

Thus, now IFCs availing ECBs under approval route would additionally be required to obtain leverage ratio certificate (i.e. outside liabilities/owned funds) from the designate AD and will submit the certificate to RBI along with the proposal of ECBs.

This is being done to avoid the IFCs from taking resort to excessive leveraging that may lead to a accumulating of debt by these non-banking financiers.

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