This week, the RBI (India’s apex central bank) released a circular which overhauls the current framework for external commercial borrowings (ECB) in India. This update follows the new Foreign Exchange Management (Borrowing & Lending) Regulations, 2018 which were introduced late last year in December, 2018.
The new ECB framework has far reaching impact for international organizations having operations and subsidiaries in India. Some notable features of the new policy include the following:
- All companies eligible to receive foreign direct investment (FDI) under India’s FDI policy shall now be allowed to raise ECB’s. Limited Liability Partnerships also permitted under the new guidelines.
- Lenders (including group and holding companies) need to be based in a FATF or IOSCO compliant country.
- Foreign equity holders are allowed to fund working capital through borrowings as well.
- ECB’s up to US$ 750 Mn allowed under automatic routes (subject to certain compliances)
- Permissible debt: equity ratios for ECB’s aggregating more than US$ 5 Mn are to be adhered with, especially where ECB’s are issued by foreign equity holders.
- Compliances and forms, as well as maturity, interest and security guidelines under the new ECB guidelines have been prescribed, along with special concessions for start-up and oil sectors.
This notification has far-reaching impact for international organizations in open sectors under FDI (including but not limited to services, technology etc.) which seek to raise funds from overseas parents or financial institutions.
Please watch this space for further clarifications on this circular. In case you have any questions, please reach out to firstname.lastname@example.org to set up a time to discuss with one of our financial consultants.