ECB framework simplified to 2-tier structure

 All FDI recipients can now borrow under ECB

MUMBAI: The regulatory framework for external commercial borrowings (ECB) and rupee denominated bonds has been further simplified to combine the Tracks 1 and 2 into ‘Foreign Currency Denominated ECB, whereas the Track 3 and Rupee Denominated Bonds framework have been merged into “Rupee Denominated ECB” to replace the current four-tiered structure.

The RBI stated that the framework will be instrument neutral.

Further, the list of eligible borrowers has been expanded and all entities eligible to receive foreign direct investment (FDI) can now borrow under the ECB framework.

Under the new framework, any entity that is a resident of a country and is compliant with Financial Action Task Force (FATF) or International Organisation of Securities Commission (IOSCO), will be treated as a recognised lender.

“This change increases the lending options and allows various new lenders in ECB space while strengthening the AML/CFT framework,” the RBI noted.

The minimum average maturity period (MAMP) has been kept at 3 years for all ECBs, irrespective of the amount of borrowing in lieu of the current system of various layers of MAMPs, except for borrowers specifically permitted in the circular to borrow for a shorter period.

The sector-wise limit has been done away with and all eligible borrowers can now raise ECBs up to $750 million or equivalent per financial year under the automatic route.

A late submission fee for delay in prescribed reporting under the ECB framework has been introduced to obviate the need for compounding these contraventions.

As part of the on-going efforts at rationalising multiple regulations framed under FEMA 1999 over a period of time, the regulations governing all types of borrowings and lending transactions between a person resident in India and a person resident outside India, both in foreign currency and Indian Rupee, have been consolidated and the Revised Regulation has been notified.

The RBI said that the revised regulations have been introduced in consultation with the Government of India in order to rationalise the extant framework for ECB and Rupee denominated bonds to further improve the ease of doing business.

 

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