External Commercial Borrowing (ECBs) - Overview

External commercial borrowing is also known as commercial loans widely used by eligible resident entities. External commercial borrowing helps Indian organizations to raise funds in foreign currencies from outside India. 

What is External Commercial Borrowing? 

ECB stands for external commercial borrowing is an instrument that aids Indian organizations to raise funds from outside India by foreign countries. This type of external commercial borrowing is legally permitted by the Indian government for corporate bodies to raise funds and expand the company's current capacity. ECB can also be used for fresh investment. These are similar to ECB and include Foreign Currency Convertible Bonds (FCCBs) and Foreign Currency Exchangeable Bonds (FCEBs). 

External commercial borrowing falls under commercial loans that include securitized instruments, bank loans, buyer credit, supplier credit, and bonds availed from lenders. 

Sources of ECB 

It can be availed through an automatic or approval route. 

Automatic Route: In the automatic route, the cases are examined by the Authority Dealer Category-I 

Approval Route: With the approval route, the prospective borrowers are requested to send their approaches to RBI through their authorized dealers for examination. 

Currency of Borrowing  

ECB can be availed in easily convertible foreign currency as well as in Indian rupees or any other currency as specified by the Reverse Bank of India. 

Benefits of External Commercial Borrowing 

The following are some of the benefits associated with external commercial borrowing as follows: 

• Borrowing funds from external sources are comparatively low, Indian firms and organizations can borrow money at lower interest rates from the eurozone and the united states.
• Corporate bodies can able to meet larger requirements from international players, in return achieve through domestic players.
• The investor base can be diversified by the borrower.
• Gain access to global markets will help the borrowers to get the chance to explore opportunities worldwide.
• Moreover, ECB not only helps units to expand their business but also benefits the economy. The government allows a great percentage of funding through ECB for the SMEs units. This aids significantly the growth of the country.
• Companies can increasingly make a profit through ECB.

Eligibility of Borrowers 

The entities engaged in the following categories are eligible: 

• International banks and capital markets
• Export credit agencies
• Equipment's suppliers
• Foreign equity holders
• Overseas long-term investors as prescribed

Also read: - A Complete Guide on Commercial Property Loan in India

Individual Limit of Borrowing 

The borrowing amount of startups has been set at a limit of USD 3 million or equivalent per financial year. While eligible borrowers/category of borrowers may raise ECB up to USD 750 million or equivalent per financial year. 

Eligible Lenders 

As defined in the ECB policy, the lender should be a resident of a FATT or IOSCO-compliant country. Multilateral, Regional, and Government-owned financial institutions where India is a member of the country are also considered eligible lenders. 

List of Documents required to bring ECB to India 

Borrowers would need the following documents to keep in handy before application: 

• A complete project report for external commercial borrowing with projected financials
• Describe a note on “How ECB would raise funds for the company”.
• For various applicants, a designated authorized dealer with separate forms e.g ECB1, ECB2, ECB3 to be attached.
• Company identity proof such as incorporation certificate, MOA/AOA, copy of board resolution, and other annual reports.
• Post execution of loan agreement, file charge docs with ROC based on company act.
• Form 83 is essential to obtain a loan registration number (LRN), once LRN is initiated by an overseas banker, shortly funds would be transferred to company accounts.

How to Avail External Commercial Borrowing? 

Borrowers need to meet certain eligibility requirements created by the government for availing of finance under the automatic route. Such regulations include the size of the amount, type of industry, end-use of the funds..etc. Companies that wish to raise funds through ECB under the approval route; companies must fall under certain pre-specified sectors to get RBI’s or government explicit permission prior to raising funds through external commercial borrowing. Even formal guidelines and circular has been published by the Reverse Bank of India for the specification of norms and regulations. 

The funds borrowed through ECB are used for business expansion, but borrowers cannot use these for repaying existing loans, onward lending, or investing in real estate. 

Also read: - Multi-Purpose Personal Loan for Business Owners