For Indian businesses looking to fuel ambitious growth plans, expand operations or diversify their funding sources, External Commercial Borrowings (ECBs) offer a compelling avenue. These commercial loans raised by eligible Indian entities from recognized non-resident entities provide access to international capital, often at more competitive rates than domestic options. At Praman Advisors Private Limited, we specialize in guiding businesses through the intricate landscape of ECBs ensuring seamless compliance and successful capital acquisition.
1. Overview:
External Commercial Borrowings (ECBs) are commercial loans generated by eligible resident entities in India from recognized non-resident entities. Governed by the Reserve Bank of India (RBI) under the Foreign Exchange Management Act (FEMA), ECBs are a crucial component of India's foreign investment framework. They can be denominated in foreign currency (FCY ECB) or Indian Rupees (INR ECB) and come in various forms.
Opting for External Commercial Borrowings can provide significant advantages for Indian businesses:-
Lower Interest Rates: One of the most attractive aspects of ECBs is the potential to access funds at lower interest rates compared to domestic borrowings. This is particularly true when borrowing from economies with lower benchmark rates.
Access to Large Volume of Funds: International markets offer a larger pool of capital, enabling companies to meet substantial funding requirements that might be challenging to fulfill through domestic sources alone.
Longer Maturity Periods: ECBs generally come with longer maturity periods, providing businesses with more flexibility in repayment and allowing for long-term project financing.
Diversification of Funding Sources: Tapping into international financial markets reduces dependence on domestic financing options, enhancing financial resilience and stability.
No Equity Dilution: As ECBs are debt instruments, they do not involve the dilution of ownership stakes, allowing promoters to retain control over their companies.
Global Expansion and Acquisitions: ECBs provide the necessary capital for Indian companies looking to expand their global footprint, fund international acquisitions or conduct cross-border transactions in foreign currencies.
Meeting Specific Foreign Currency Needs: For businesses involved in importing machinery, raw materials or services, ECBs denominated in foreign currencies can directly address these foreign exchange requirements.
Navigating the ECB landscape requires meticulous documentation. While specific requirements may vary based on the nature and size of the borrowing, here is a general list of documents typically required:-
Company Information:
Certificate of Incorporation / Registration.
Memorandum and Articles of Association.
Board Resolution authorizing the ECB.
Shareholding Pattern.
Latest Audited Financial Statements (Balance Sheet, Profit & Loss Account) for the past 03-05 years.
Income Tax Returns of the company.
Statutory audit reports.
Project Specifics (for project financing):
Detailed Project Report (DPR).
Feasibility Study.
Environmental Clearances (if applicable).
Technical and Financial Viability Reports.
Loan Specifics:
Draft Loan Agreement with the recognized non-resident lender.
Offer letter from the lender detailing terms and conditions (interest rate, maturity, etc.).
Certificate of Due Diligence from an overseas bank regarding the lender (for individual lenders or specific cases).
RBI/FEMA Compliance Documents:
Duly filled Form ECB (for both automatic and approval routes).
Form 83 (to be submitted by the AD bank for Loan Registration Number - LRN).
Form ECB 2 (monthly reporting of actual ECB transactions).
Undertaking that ECB proceeds will be utilized only for permitted end-uses.
Any other declaration or undertaking as required by RBI guidelines.
Other Supporting Documents:
Details of existing foreign currency exposures and hedging policy.
Copy of import contracts, bills of lading, or proforma invoices (if related to imports).
PAN Card and Aadhaar Card of key management personnel/directors.
Bank account statements.
Note: Praman Advisors will provide a tailored checklist and assist you in preparing and organizing all necessary documentation.
Our experienced team at Praman Advisors streamlines the ECB application process, ensuring compliance and efficiency:-
- Initial Assessment & Consultation: We begin by understanding your business, funding requirements and eligibility for ECB under current RBI guidelines. We advise on the most suitable ECB route (Automatic or Approval).
- Lender Identification & Negotiation (Optional): While we focus on the compliance aspect, we can provide insights into recognized lender categories. You will engage with a recognized non-resident lender to finalize loan terms.
- Documentation Preparation: Our experts assist in compiling all required documents, including drafting necessary board resolutions, undertakings and ensuring all financial statements are in order.
- Application Filing through AD Bank: We facilitate the application process with your Authorized Dealer (AD Category-I) Bank. The AD bank plays a crucial role in scrutinizing the proposal and submitting relevant forms to the RBI.
- Loan Registration Number (LRN) Acquisition: For both routes, the AD bank submits Form 83 to the RBI to obtain a unique Loan Registration Number (LRN) for your ECB. This is a mandatory step before any drawdown of funds.
- RBI Processing & Approval (for Approval Route): If your ECB comes under the Approval Route, the AD bank forwards your application to the RBI for examination. The RBI evaluates proposals based on macroeconomic conditions and merits.
- Fund Drawdown & Utilization: Once the LRN is obtained (and RBI approval for the Approval Route), you can proceed with drawing down the ECB funds as per the agreed terms. We guide you on permitted end-uses and compliance during utilization.
- Post-Borrowing Compliance & Reporting: We ensure timely and accurate monthly reporting of actual ECB transactions through Form ECB 2 to the RBI through your AD bank. The continuity in this compliance is crucial to avoid penalties.
Fees:
The professional fees for our ECB consulting services depend on the complexity of your proposed borrowing, the route (Automatic/Approval) and the extent of assistance required. We offer competitive and transparent pricing, which will be discussed and finalized after your initial consultation.
-
- Manju Laur: 📞 +97119 94042
Timelines:
- Initial Preparation & Documentation: 01-03 weeks (depending on the readiness of your internal documents).
- LRN Acquisition (through AD bank): Typically 01-02 weeks after submission of Form 83 by the AD bank.
- RBI Approval (for Approval Route): This can range from 04 to 08 weeks or sometimes longer depending on the complexity of the proposal and RBI's processing time.
- Ongoing Compliance: Monthly for Form ECB 2 submissions.
We strive for efficient and timely completion of all formalities, keeping you informed at every stage.
