CHAPTER 3- CURRENT STANDING OF THE ECBs IN INDIA

To maintain the seepage of clean funds from abroad, the RBI issues Master Directions- External
Commercial Borrowings, Trade Credit and Structured Obligations(referred to as the Master
Directions, hereinafter) , in consonance with the FEMA. In line with this, the apex bank has
carefully divided the borrower as eligible entities and lenders as recognized non-residents, and
has further kept checks in form of forms of ECB, end-use restriction, minimum maturity periods,
et al1. The ECBs can be brought in as diversions under either the Foreign Currency ECB (FCY
ECB) or the Indian Currency ECB (ICY ECB), both of which have distinct lineages and
consequent implications. Of course, this line quoted above alludes to the schematic borrowers-
such as any entity which is capable to seek FDI or certain specified entities like Port Trusts, units
arising out of Special Economic Zones (SEZs), Small Industries Development Bank of India
(SIDBI) and EXIM Bank of India. The modalities regarding the obtaining of ECBs boil down to
the multi-faceted categories of 'recognized lenders'2 i.e. any entity, which is in turn, member of
the Financial Action Task Force (FATF) and International Organization of Securities
Commissions (IOSCO). In addition to the aforementioned FATF and IOSCO, the idea peters out
to the various multilateral and regional Financial Institutions where India is a member country,
as well as non-host branches / foreign subsidiaries of recognized Indian banks (subject to
applicability of the requisite laws, governed by the principle of prudence) and individuals, if they
are foreign equity holders and in addition to/or due to subscription of bonds/debentures that are
listed in an alien country, are also accepted under the head of ‘recognized lenders’ for procuring
ECBs.

Over the last few years, the RBI has become more liberal with its approach and its
interpretations have been widened, to not somnambulate through the course of inviting greater
offshore debts from abroad. Master Direction No. 5 on ‘External Commercial Borrowings, Trade
Credits and Structured Obligations dated March 26, 2019 3 may be referred to for guidance on the
1
Rupin Chopra and Meril Mathew, ‘External Commercial Borrowing and Foreign Direct Investment’ (Mondaq
January 29, 2020) <https://www.mondaq.com/india/contracts-and-commercial-law/888054/external-commercial-
borrowing-and-foreign-investment-india-> accessed August 17, 2020.
2
Abhinav Harlalka and Karan Kalra, ‘External Commercial Borrowings: Regulatory Framework Substantially
Relaxed’ (NDA Hotline February 1, 2019) < http://www.nishithdesai.com/information/research-and-articles/nda-
hotline/nda-hotline-single-view/article/external-commercial-borrowings-regulatory-framework-substantially-
relaxed.html?no_cache=1&cHash=225df0a15bad7dc66b993edb783fe9f8> accessed August 17, 2020.
3
Master Direction 5, ‘External Commercial Borrowings, Trade Credits and Structured Obligations’ (March 26, 2019
viz. August 8, 2019) Reserve Bank of India < https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?
extant framework on ECB and TC. ECBs and TCs raised under the prior frameworks should
continue to be in congruity and link with the pre-existing and hardbound guidelines applicable at
the time of availing the ECBs and TCs 4, and such directions are pursuant to sections 10(4) and
11(1) of the FEMA.

As per the latest master direction, one must keep into mind that there are some notable
restrictions to the ECBs drilled in. Even through the proceeds from ECB are allowed to be
pumped into the shortened working capital, or to meet the expenditures arising out of general
corporate transactions (both of which have a rider of Minimum Average Maturity Period worth
10 years)5, for the clearing off of domestic loans in terms of rupee (in this case, the Minimum
Average Maturity Period drops a few rungs to a 7 year period) 6 and the like, there are plausible
limits and leverage semantics for the usage of ECBs. It is not a “be-all and end-all” kind of
instrument; rather it is subject to scrutiny, coordination and monitoring by the RBI. Driving
home the assertion is the fact that there are three clear areas which have been placed in the
negative by the Master Direction, such as activities relating to real estate, investments in the
capital markets and equity romped investments7. Such luminescent restrictions are important for
ensuring that the upper hand of the Ministry of Finance and the RBI prevails in maintaining flow
equilibrium of the BoP account, consequently reducing middlemen transactions and
malpractices. The rounds of restrictions help prevent fraud, a propos, of any Indian enterprise by
an unsolicited, untested off shore blue-chip company.

The overt acceptance of ECB by the India Inc. can be vitalized through statistics.  If one were to
refer to a report by acclaimed English daily, The Hindu, citations have been provided in
compliance with the released RBI data, one which casts in stone the fact that India raised a
higher level of External Commercial Borrowings (ECBs)/ Foreign Currency Convertible Bonds

id=11510> accessed August 17, 2020.

4
Akanksha Dua, ‘Evolution of the Indian ECB Framework’ (Mondaq April 22, 2019)
<https://www.mondaq.com/india/contracts-and-commercial-law/799160/evolution-of-the-indian-ecb-framework?
type=mondaqai&score=66> accessed August 18, 2020.
5
STA Law Firm, ‘ Overview: External Commercial Borrowings in India’ (Mondaq August 19, 2020)
<https://www.mondaq.com/india/contracts-and-commercial-law/977312/overview-external-commercial-
borrowings-ecbs-in-india?type=relatedwith&signup=true> accessed August 19, 2020.
6
Ibid.
7
A.P. (Dir. Series) Circular No. 4, ‘External Commercial Borrowings (ECB) Policy – Rationalization of End-use
Provisions’ (New Delhi: July 30, 2019), Reserve Bank of India
<https://www.ibbi.gov.in/uploads/whatsnew/External_Commercial_Borrowings_(ECB)_Policy_
%E2%80%93_Rationalisation_of_End-use_Provisions.PDF> accessed August 19, 2020.
(FCCBs), worth $25.17 billion (both under the Approval and Automatic routes) in the quarter
extending from April to September, last year 8.  The cumulative value of the borrowing was a
mammoth 53 per cent greater than the $16.48 billion that Indian corporate(s) raised during the
comparable quarter of the year preceding 2019.9 In Financial Year 2019 alone, the total
borrowing through the ECB route was nearly $42 billion up from $29 billion in Financial Year
2018; such an increment had not been predicted by even the most venerable heads in business.

With the RBI having chopped and changed the industry-specific diversions for automatic and
approval routes respectively, it has done so to smoothen the entire turnstile that surrounds the
hierarchical procurement of ECBs. The reduction of minimum average maturity periods allude to
the RBI’s vision of harnessing a round-up financial vortex through external debts- with the ECBs
being employed as a primary source. When one marries the relatively lower rates of interest
chargeable on the ECBs brought in from the Eurozone countries and the countries from South-
East Asia, India stands to benefit greatly. What corporations within our territorial jurisdiction
must work out is a gossamer-like system of balance between the balance sheets on display, and
the potential exchange risks arising out of such borrowings. Excesses of ECBs shall surely leave
the economy in dire straits, thus defeating the whole purpose of the leverage that has been
provided, through the Master Directions.

8
Narayanan V., ‘India Inc.’s ECBs surge 53% in first half of fiscal year to $25 billion’ (The Hindu Business Line
November 11, 2019) <https://www.thehindubusinessline.com/economy/india-incs-ecbs-surge-53-in-first-half-of-
fiscal-year-to-25-billion/article29941885.ece> accessed August 18, 2020.
9
TNN, ‘RBI eases foreign borrowing norms for NBFCs, defaulters’ (The Times of India July 30, 2019)
<https://timesofindia.indiatimes.com/business/india-business/rbi-eases-foreign-borrowing-norms-for-nbfcs-
defaulters/articleshow/70457777.cms> accessed August 19, 2020.