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LexCognito

This issue of LexCognito, which in Latin means 'awareness about law', seeks to provide you an insight into significant legal and regulatory developments that have taken place very recently in India.


Date: 1 August 2019
RBI relaxes External Commercial Borrowing (ECB) restrictions
The Reserve Bank of India ("RBI") vide its circular no. RBI/2019-20/20 dated 30 July 2019 has revised and simplified the framework for External Commercial Borrowings by relaxing the end-use restrictions, allowing corporates and non-banking finance companies ("NBFCs") to raise External Commercial Borrowings for working capital, general corporate purposes and repayment of rupee loans.

External Commercial Borrowings ("ECB") means borrowings/loans by an Indian borrower from outside India. ECBs can be raised only by an eligible resident entity from outside India in accordance with the framework decided by the RBI in consultation with the Government of India. It means they should conform to parameters such as minimum maturity, permitted and non-permitted end-uses, and maximum all-in-cost ceiling.

Under the earlier framework, ECB proceeds could not be utilised for working capital purposes, general corporate purposes, and repayment of rupee loans except when ECB is availed of from the foreign equity holder for a minimum average maturity period of five (5) years. Further, on-lending for the above purposes out of ECB proceeds, was also prohibited. Now, the RBI has liberalized the ECB Framework by relaxing the end- use restrictions by taking a step to boost the economy by providing better access to global markets by eligible Indian borrowers.

Key takeaways:

1. Relaxation of end-use restrictions under Revised ECB Framework: Now, eligible borrowers will be allowed to raise ECBs from recognised lenders. As per the revised framework, ECBs can be availed from recognised lenders for the purposes and maturity period as captured in the table below:
 
Availed by End- use Minimum Average Maturity Period [MAMP]
Eligible Borrowers
[all entities eligible to avail FDI, Port trusts, units in SEZ, SIDBI, EXIM Bank, registered entities in micro-
finance activities]
Working capital purposes and General corporate purposes
10 Years
NBFC’s
On-lending for:
  • Working Capital purposes,  and
  • General Corporate Purposes
10 Years
Eligible Borrowers Repayment of Rupee loans availed domestically for capital expenditure  7 Years
NBFC’s
On-lending for:
  • Repayment of Rupee loans availed domestically for capital expenditure
7 Years
Eligible Borrowers Repayment of Rupee loans availed domestically for purposes other than capital expenditure
 
10 Years
NBFC’s
On-lending for:
  • Repayment of Rupee loans availed domestically for purposes other than capital expenditure
10 Years
 
2. Corporate borrowers classified as SMA-2 or NPA permitted to avail ECB: 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 arrangement with lenders.
 
3. Lender Banks are permitted 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. 

The above circular emphasizes that the prescribed average maturity provision, provided for the respective end – users will have to be strictly complied with under all circumstances. All other provisions of ECB Policy remain unchanged.
 
CRI Comment: This step taken by RBI of relaxing the end-use restrictions has brought a great relief to the corporate sector which often faces liquidity crunch so far as their general corporate and working capital funding needs are concerned. Also, the Lender Bank’s burden will be reduced since they can now assign loans to the ECB lenders (other than foreign branches/overseas subsidiaries of Indian banks) as well.
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Chambers of Rajan & Indraneel 
T: +91 11 41000224, 41030225| Fax:+91 11 29239074 
E-mail: rajan.gupta@chrilegal.com 
Mobile: +91 9810404086 
N 103 Greater Kailash - I, New Delhi - 110048, India.
About us
 
Chambers of Rajan & Indraneel is a premier full service law firm headquartered at New Delhi, India. The Firm represents amalgamation of vast experiences and practices of two eminent lawyers. Indranil Ghosh is highly reputed as a disputes lawyer. He was a senior partner and head of litigation practice in one of the oldest Indian law firm Fox Mandal for several decades before setting up his own practice. Rajan D Gupta is a rank holder Chartered Accountant turned Corporate Lawyer. He is also a licensed Insolvency Resolution Professional. He has been associated with internationally renowned big law firms in past and has held senior level positions in firms like PwC, Fox Mandal, Khaitan & Co. and SRGR Law, etc. before starting the Firm.

We have a team of experienced Lawyers, Chartered Accountants, Company Secretaries and Insolvency Resolution Professionals with access to network of high quality experienced lawyers in all major commercial cities of India.

The Firm offers a wide range of expert legal services in the areas of corporate and commercial laws and specializes in representing major foreign and domestic corporations with diverse business interests in India. The Firm is professionally equipped to handle large sized and complex corporate transactions like Mergers & Acquisitions, Corporate Restructuring, Joint Ventures, Inbound & Outbound Investments, Private Equity and Venture Capital Investment Transactions, Real Estate Transactions, Infrastructure Projects, Project Finance, Power Projects, Non-Conventional Energy Projects, Highways & Road Projects and Corporate Taxation as well as GST, etc. The Firm also offers proven capabilities in litigation and dispute resolution practice areas, especially in handling international and domestic arbitrations as well as litigation in Supreme Court, various High Courts of India and various judicial and quasi-judicial tribunals/forums including at National Client Law Tribunal, Appellate Tribunals, Tax Tribunals, Competition Commission, Electricity Tribunal, Telecom Disputes Tribunal, Designated Authorities and other adjudicatory bodies.


We have set up a Japan Business Desk (JBD) in order to serve our Japanese clients in a better way. The endeavour of the JBD is to act as a bridge between our professionals and clients from Japan so as to ensure that there are no barriers as to linguistic and cultural differences. This will indeed facilitate Japanese corporates doing business in India. 
 
DISCLAIMER
 
This newsletter contains general information available in public domain at the time of its preparation. It is intended as a general news update and is not intended to be comprehensive nor to provide specific business, financial, investment, legal, tax or other professional advice or opinion or services. This newsletter is not a substitute for such professional advice or services, and it should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business. Before making any decision or taking any action that may affect you or your business, you should consult a qualified professional adviser and refer to the source pronouncement/documents on which this business alert is based. It is also expressly clarified that this newsletter is neither a solicitation nor an invitation of any sort whatsoever or a source of advertising from our firm or any of its partners or lawyers or other professionals to create any adviser-client relationship. Whilst every effort has been made to ensure the accuracy of the information contained in this news alert, this cannot be guaranteed, and neither our firm nor any related person/entity shall have any liability to any person or entity that relies on the information contained in this publication. Any such reliance is solely at the user's risk.
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