ECB Compliance in India- An Overview The full form of ECB is External Commercial Borrowings. External Commercial Borrowings are commercial loans provided by foreign institutional investors. These loans carry a lower interest rate than those offered by commercial banks in India. Therefore, companies and Public Sector Undertakings (PSUs) prefer opting for the ECB. To utilize these ECB loans, corporates must follow the rules related to ECB Compliance in India. As ECBs can be used only for specific commercial purposes, the borrower has to utilise the funds provided by foreign investors carefully. Therefore, it is essential to consider the business needs and long-term goals of the organisation before opting for ECBs. Non-compliance with the provisions of the ECB will attract a penalty. As these borrowings can be used only for a specific commercial purpose, there is an End-use requirement. This means that the ECB borrowed can be used only for the purpose mentioned in the End-use. Hence, the user must follow the rules related to ECB compliance in India. What is External Commercial Borrowing? External Commercial Borrowing (ECB) allows Indian companies to raise funds in foreign currency from international lenders, in accordance with RBI ECB guidelines. Essentially, ECBs are loans that Indian businesses obtain from non-resident foreign lenders, typically through foreign commercial banks and financial institutions. Companies use ECBs to finance the expansion of their operations or to fund new investments. Borrowers must follow the ECB loan guidelines by the Reserve Bank of India. Benefits of ECB Compliance Borrowers have to keep in mind the following before utilizing ECB. There are different benefits of ECB compliance. Hence, borrowers prefer utilising this form of ECB loan for carrying out different purposes: Compliance with the Rules ECB compliance in India is required for all forms of borrowers that carry out activities. Such activities which would be carried out by borrowers should be according to ECB compliance requirements. Optimum Utilization by Borrowers Borrowers can utilize these forms of External Commercial Borrowing loans to carry out work related to specified commercial activities. Low Interest Rates Compared to other commercial banks, taking loans that meet ECB compliance requirements can be more beneficial. By following the ECB compliances checklist, borrowers often enjoy lower interest rates. Generally, interest rates from foreign institutions are lower than those from public sector banks. End-Use Requirements Another benefit of utilizing External Commercial Borrowing is to fulfil the end-use requirement of the borrower. Hence the borrower would only be allowed to utilize ECB for carrying out the work which is stated in the particular proposal. Routes For External Commercial Borrowings (ECB Compliance) A company planning to borrow from foreign institutions in the form of the ECB has to follow the requirements of ECB compliance in India. Currently, there are two routes for ECB in the country: 1. External Commercial Borrowing through Automatic Route 100% foreign investment can be carried out through the automatic route. Under this route, no prior approval is required from the government of India. If the investment for external commercial borrowings falls under this route, then ECB compliance has to be met in order to satisfy the criteria. 2. External Commercial Borrowing through Government Route The government route requires prior approval from the government. Hence, in a transaction involving ECB, both the lender and borrower have to comply with the ECB reporting requirements. External Commercial Borrowing can be done through the Automatic Route and Approval / Government Route. However, under the Automatic route, there are certain ECB limits prescribed. The following are ECB Limits for particular sectors: Infrastructure sector, real–industrial sector up to USD 750 million. Software development sector, hotels, hospitals –up to USD 200 million. Microfinance activities – up to USD 100 million. A company or other remaining entities (other than a financial intermediary, registered under the Companies Act, can raise USD 500 million in a financial year. If the ECB value goes above the limit, then the approval/government route has to be taken. Here, the prior approval of the concerned government authority is considered. Generally, companies can borrow under the automatic route. Approval needs to be taken under the following cases: When a service sector company is not in the business of hotels, hospitals, or software services, such as R&D and training institutions, SEZ developers (wanting to provide infrastructure facilities in the SEZs) Co-operative societies, financial institutions or banks. Who Regulates External Commercial Borrowings? The Reserve Bank of India and FEMA are the regulatory bodies and laws related to External Commercial Borrowings, governed by specific ECB rules and regulations. Additionally, the Foreign Exchange Management (Borrowing and Lending in Foreign Exchange) Regulations 2000 and the Foreign Exchange Management (Borrowing and Lending in Rupees) Regulations 2000 regulate ECBs. In 2018 a notification was passed by the Reserve Bank of India – the Foreign Exchange Management (Borrowing & Lending) Regulations 2018 provides the scope for RBI ECB guidelines in consultation with the government of India to make certain changes. Impact of ECB on Start-ups External Commercial Borrowed (ECB) funds offer startups access to significant capital, typically at lower interest rates compared to domestic loans, facilitating business growth and expansion. This capital can be used to expand operations and invest in new technologies. However, startups must address the risks associated with foreign exchange rate fluctuations and adhere to regulatory standards discussed under the RBI’s ECB Master Directions to reduce potential financial consequences. Documents Required for ECB Compliance There are certain documents required for ECB compliance, such as: Loan Agreement (Borrowers need to enter into a loan agreement with the Authorised Dealer) Loan Registration Number The loan Registration Number has to be received from the Reserve Bank before securing the ECB. The authorised dealer has to submit the form to the RBI to get the Loan Registration Number. To get the LRN, the Authorised Dealer has to submit form 83 in duplicate, which has been verified by a CA or CS. ECB -2 Return- Reporting of Monthly Transactions related to ECB compliance Form- ECB Copy of the respective offer letter furnishing the respective details of the offer Copy of the import Contract/ proforma invoice or bill of lading Undertaking that the ECB has to be utilised only for permitted purposes Our top-notch ECB advisory services ensure easy and zero-hassle documentation. Eligibility Criteria for External Commercial Borrowing Compliance The following criteria have to be fulfilled as per the ECB reporting requirements related to External Commercial Borrowing Compliance: Manufacturers- This would include all forms of industries involved in manufacturing products. SIDBI- Small Industries Development Bank of India; Units in Special Economic Zones (SEZs) Shipping and airline companies; Export-Import Bank of India (Exim Bank) (only under the approval route) Non-Banking Financial Companies (NBFCs); Companies in the infrastructure sector; Holding companies; Core Investment Companies (CICs); Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (INVITs) come under the regulatory framework of the Securities and Exchange Board of India (SEBI); NBFCs-Micro Finance Institutions (NBFCs-MFIs), Not for Profit companies registered under the Companies Act, 1956/2013, Societies, trusts and co-operatives (registered under the Societies Registration Act, 1860, Indian Trust Act, 1882 and State-level Co-operative Acts/Multi-level Co-operative Act/State-level mutually aided Co-operative Acts respectively), Non-Government Organisations (NGOs) which are engaged in microfinance activities; Companies engaged in miscellaneous services viz. research and development (R&D), training (other than educational institutes), companies supporting infrastructure, companies providing logistics services; Developers of Special Economic Zones (SEZs) or National Manufacturing and Investment Zones (NMIZs); Eligibility Criteria for ECB Compliance for Lenders The lenders below have to follow rules related to ECB Compliance: International banks International capital markets Multilateral financial institutions (such as IFC, ADB, CDC, etc.) Export credit agencies Suppliers of equipment Foreign collaborators Foreign equity holders (other than erstwhile OCBs) External Commercial Borrowings Procedure Understanding the external commercial borrowings procedure is essential. External Commercial Borrowings can be done either through the Automatic Route or the Approval/ Government Route. Automatic Route The applicant who requires external commercial borrowings should approach the concerned/ designated authorised dealer. An authorised dealer can be a bank, a fully-fledged money changer or any other person. The application should be sent to the following address: Principal Chief General Manager, Foreign Exchange Department, Reserve Bank of India, Central Office, External Commercial Borrowings Division, Mumbai – 400 001. The borrower must get the LRN (Loan Registration Number) from the Reserve Bank of India before taking external commercial borrowings. This would be in accordance with ECB compliance. To get the LRN- the applicant has to submit in duplicate Form 83 with all the Documents. Form 83 has to be certified by a Chartered Accountant or Company Secretary. The form has to be forwarded to the designated bank. One copy has to be submitted to the designated bank following address: Director, Balance of Payments Statistics Division, Department of Statistics and Information Management (DSIM), Reserve Bank of India, Bandra-Kurla Complex, Mumbai – 400 051. The borrower can draw down the ECB loan only after obtaining the LRN from DSIM, Reserve Bank. Borrowers are required to submit ECB-2 Return certified by the designated AD bank monthly to reach the Department of Statistics and Information Management (DSIM), Reserve Bank, within seven working days from the close of the month to which it relates. The borrower has to submit form ECB to the RBI. After scrutinising the application, RBI will grant permission. Approval Route For the approval route, the applicant has to satisfy the requirements related to form ECB Compliance. The form ECB must be submitted to the following address: Principal Chief General Manager, Foreign Exchange Department, Central Office, ECB Division, Reserve Bank of India, Mumbai 400001. Along with the above form all the information along with the Documents have to be submitted to the above address. Make your External Commercial Borrowings procedure easy with our ECB policy advisory and ECB risk mitigation services. Timeline for Completion of ECB Compliance in India The timeline for the completion of ECB (External Commercial Borrowing) compliance depends upon various factors such as the nature of borrowing, regulatory efficiency, etc. The breakdown of the timeline for the completion of the ECB compliance in India: Initial Preparation (1-2 Weeks) Application Submission (2-4 Weeks) Regulatory Review (4-8 Weeks) Approval and Compliance (2-4 Weeks) Final Documentation and Reporting (1-2 Weeks) Book an appointment with our ECB compliance audit experts to save your time. Why Choose Enterslice for ECB Compliance Services? Choose us for expert ECB compliance services that simplify complex regulations and keep your business ahead. With a proven track record and proactive updates, we ensure seamless ECB compliance from start to finish. Given below are the reasons why banks, NBFCs, educational organizations, and companies prefer us for ECB compliance services- Trusted by 500+ Financial Institutions and Companies for ECB Risk Mitigation ECB Application Assistance 99% Success Rate in Securing ECB Approvals Regulatory Compliance Management Timely Submission of ECB Reports Reduce ECB Compliance Costs by up to 30% Liaison with Authorities 10+ Years of Experience in ECB Advisory Services ECB Legal Advisory Support ECB Compliance Audit Support ECB Compliance Advisory Solutions Achieve 99% compliance with our expert ECB analysis
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