RBI eases ECB norms, gives more power to banks-February 2010

February 09, 2010: 

As per the extant ECB procedures, 
any changes in the terms and conditions of the ECB after
obtaining the Loan Registration Number (LRN) from the 
Department of Statistics and Information Management (DSIM),
Reserve Bank, require the prior approval of the Reserve Bank.

Accordingly, the requests of the borrowers for changes in the
terms and conditions, such as, drawdown / repayment schedules, 
currency of borrowing and changes in designated AD bank, 
name of the borrowing company, etc. are referred to the
Reserve Bank for necessary approval. 



As a measure of simplification of the existing procedures,
Reserve Bank of India has decided to delegate powers to 
the designated AD category-I banks to approve the following
requests from the ECB borrowers, subject to specified conditions:

a) Changes / modifications in the drawdown / repayment schedule

Designated AD Category – I banks may approve changes /
modifications in the drawdown / repayment schedule of the 
ECBs already availed, both under the approval and the automatic
routes, subject to the condition that the average maturity period, 
as declared while obtaining the LRN, is maintained. 

The changes in the drawdown / repayment schedule should
be promptly reported to the DSIM, Reserve Bank in Form 83. 

However, any elongation / rollover in the repayment on expiry
of the original maturity of the ECB would require the prior approval 
of the Reserve Bank.

b) Changes in the currency of borrowing

Designated AD Category I banks may allow changes
in the currency of borrowing, if so desired, by the borrower
company, in respect of ECBs availed of both under the automatic 
and the approval routes, subject to all other terms and conditions of the ECB remaining unchanged. Designated AD banks should, however, ensure that the proposed currency of borrowing is freely convertible.

c) Change of the AD bank

Designated AD Category - I banks may allow change of the 
existing designated AD bank by the borrower company for
effecting its transactions pertaining to the ECBs subject to
No-Objection Certificate (NOC) from the existing designated AD bank and after due diligence.

d) Changes in the name of the Borrower Company

Designated AD Category - I banks may allow changes in
the name of the borrower company subject to production 
of supporting documents evidencing the change in the 
name from the Registrar of Companies.

The modifications to the ECB guidelines have come into
force with immediate effect. All other aspects of the ECB 
policy, such as USD 500 million limit per company per 
financial year under the automatic route, eligible borrower, 
recognised lender, end-use, all-in-cost ceiling, average 
maturity period, prepayment, refinancing of existing ECB 
and reporting arrangements remain unchanged.

RBI to Tighten ECB Norms by Reintroducing Ceiling

12 December 2009

With improvement in the global credit markets and narrowing
 of spreads, the Reserve Bank of India (RBI) decided today
to reintroduce the ceiling on interest rates that Indian
companies pay for external commercial borrowing.

The norms that take effect from January 2010, would permit
Indian companies to raise debt for three to five years by
paying up to 300 basis points above the London Inter-bank
Offered Rate (LIBOR). Those using the ECB window to raise
 ECB-Bfunds for over five years would be allowed to pay up
 to 500 basis points over Libor, RBI said in a communication
this evening.

RBI had lifted the restriction on ECBs in January, following
intensification of the global financial crisis after Lehman Brothers collapsed.

RBI also decided today to shut the special window that allowed
 companies to buy back foreign currency convertible bonds to
reduce debt burden at the height of the global financial crisis.

The reintroduction of the cost ceiling and withdrawal of the
 FCCB buyback facility are the latest in a series of rollbacks
RBI has introduced since the economic environment improved.

 In late October, the central bank had decided to revert to
a statutory liquidity ratio of 25 per cent for Indian banks.

While the overall direction was to signal a check on excessive
inflows, RBI has eased ECB norms for telecom companies and
infrastructure-focused, non-banking finance companies.

 In addition, companies engaged in the development of
integrated townships have been given another 12 months
(up to December 2010) to make use of the simplified norms
announced last year.

The simpler norms for telecom companies were an extension of
 the October 2008 decision, when operators were allowed to use
 ECBs to obtain 3G licenses. Now, they have been permitted to
use the route for payment of spectrum allocation, too.

A senior executive at a leading foreign bank said RBI was
 signalling, through today’s moves, to check excessive flow
 of capital into the country. “The high capital flows through
ECBs, FCCB and portfolio investment have pushed up the value
of the rupee against the US dollar. Another message is that
only high-quality companies should tap the overseas market,”
the executive said.