RBI eases end-use ECB norms for Corporates and NBFCs

Timothy Lopes, Executive, Vinod Kothari & Company


The Reserve Bank of India (RBI) has wide press release[1] dated 30. 07. 2019 revised the framework for External Commercial Borrowings based on feedback from stakeholders, and in consultation with the Government of India, by relaxing the end-use restrictions with a view to ease the norms for Corporates and NBFC’s. The changes brought about can be found in the RBI Circular[2] on External Commercial Borrowings (ECB) Policy – Rationalisation of End-use Provisions dated 30. 07. 2019

Corporate sector continue to face liquidity crunch and this move from RBI is certainly a welcome move.

ECB are commercial loans raised by eligible borrowers from the recognised lenders for the permitted end use prescribed by RBI.

The ECB framework in India is mainly governed by the Foreign Exchange Management Act, 1999 (FEMA). Various provisions in respect of this type of borrowing are also included in the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018[3] framed under FEMA.

The RBI has also issued directions and instructions to Authorised Persons, which are compiled and contained in the Master Direction – External Commercial Borrowings, Trade Credit, and Structured Obligations[4].

Relaxation granted in end-use restrictions


In the earlier framework as covered in the Master Direction – External Commercial Borrowings, Trade Credit, and Structured Obligations (Master Directions), ECB proceeds could not be utilized for working capital purposes, general corporate purposes and repayment of Rupee loans except when the ECB was availed from foreign equity holder for a minimum average maturity period (MAMP) of 5 years.

Further on-lending out of ECB proceeds for real estate activities, investment in capital market, Equity investment, working capital purposes, general corporate purposes, repayment of rupee loans was also prohibited. These restrictions were made under the end-uses (Negative list) of the Master Direction.

With a view to further liberalize the ECB Framework in view of current hardship being faced by corporate sector; RBI has decided to relax these end-use restrictions.

Accordingly the said relaxations by RBI reflect as under:

Revised ECB Framework
ParticularsECBs Availed fromByPermitted End-usesMAMP
Erstwhile ProvisionForeign Equity HolderEligible Borrower·         Working capital purposes

·         General corporate purposes or,

·         Repayment of Rupee loans

5 Years
Amended ProvisionRecognised Lenders*Eligible Borrower·         Working capital purposes and,

·         General corporate purposes

10 Years
Recognised Lenders*NBFC’s·         On-lending for:

o   Working Capital purposes and,

o   General Corporate Purpose

10 Years
Recognised Lenders*Eligible Borrowers including NBFC’s·         Repayment of Rupee loans availed domestically for capital expenditure and,

·         On-lending for above purpose by NBFC’s

7 Years
Recognised Lenders*Eligible Borrowers including NBFC’s·         Repayment of Rupee loans availed domestically for purposes other than capital expenditure and,

·         On-lending for above purpose by NBFC’s

10 Years
*ECBs will be permitted to be raised for above purposes from recognised lenders except foreign branches/ overseas subsidiaries of Indian Banks and subject to Para 2.2 of the Master Direction dealing with limit and leverage.


Relaxation for Corporate borrowers classified as SMA-2 or NPA


Further, Eligible Corporate Borrowers are now permitted to avail ECB for repayment of Rupee loans availed domestically for capital expenditure in manufacturing and infrastructure sector if classified as Special Mention Account (SMA-2) or Non-Performing Assets (NPA), under any one time settlement with lenders.

Permission to Lender Banks to assign loans to ECB 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 ECB complies with all-in-cost, minimum average maturity period and other relevant norms of the ECB framework.

These permissions would reduce the burden of the lender banks who classified borrower’s account as SMA-2 or NPA.


Liberalization of the ECB policy by RBI acts as a step toward increased access to global markets by eligible Indian borrowers. In the current scenario of an economic slowdown, these changes come as a push upwards for the Indian economy.

Besides the above-mentioned changes in the Master Direction, all other provisions of the ECB policy remain unchanged.

[1] https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=47736

[2] https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11636&Mode=0

[3] https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11441&Mode=0

[4] https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11510#1

Other relevant articles of interest can be read here –

  1. http://vinodkothari.com/wp-content/uploads/2018/05/Revised-Article-on-revised-ECB-framework-2.pdf
  2. http://vinodkothari.com/2019/03/consolidation-of-new-ecb-and-trade-credit-framework/
  3. http://vinodkothari.com/2019/02/rbi-revises-ecb-framework-aligns-with-fema-borrowing-and-lending-regulations-2018/
2 replies
  1. Raju
    Raju says:

    An Indian entity, which is a 100% WoS of a foreign entity, has availed INR Fund based facility from a Scheduled Commercial Bank, which is also its AD bank. The credit facility is backed by Corporate Guarantee from its parent. As part of the underlying agreement between parent and subsidiary, the subsidiary has to pay a Guarantee fees to the parent. The subsidiary is planning to repay the fees through another AD bank, other than the bank from which it had availed the loan, owing to better fx margins.

    A) Whether the subsidiary can pay Guarantee fees to parent, as the loan raised is in INR currency from a bank in India.
    B) If it can be paid:
    1) Whether RBI permission is required for such payment.
    2) Is the underlying agreement between parent and subsidiary alone would suffice for such transaction or is any other document should be obtained. Is such guarantee percentage should be computed under arms length.
    3) Can such payment be made through another AD, apart from the one which had lent the advances. In such cases, whether NoC from the main AD bank, which had lent is required?
    4) Which purpose code will be used for such outward remittances.
    5) Whether such fees will be considered as Other Income of parent entity.

  2. Swathi
    Swathi says:


    An Indian Holding company wants to raise funds as debt (loan) from its wholly owned foreign subsidiary
    Kindly clarify whether the provisions of External Commercial borrowings apply for the suitation
    Please clarify ECB’s applicability with relevant RBI Notification for reference
    Thank You in advance


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