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RBI UPDATE - "ECB Norms Relaxed" !!!

In Continuation of our's last article about "MASALA BONDS" we are here presenting you the latest update regarding ECB (the term you must have noticed in our last article)...happy reading!!!

Indian companies are allowed to access funds from abroad in the various methods and ECB is one of them

External Commercial Borrowings (ECB) 
ECBs refer to commercial loans in the form of bank loans, securitized instruments (e.g. floating rate notes and fixed rate bonds, non-convertible, optionally convertible or partially convertible preference shares), buyers’ credit, suppliers’ credit availed of from non-resident lenders with a minimum average maturity of 3 years.

Other Methods Are

Foreign Currency Convertible Bonds (FCCBs)
FCCBs mean a bond issued by an Indian company expressed in foreign currency, and the principal and interest in respect of which are payable in foreign currency.

Preference shares
  • Preferences Shares (i.e. non-convertible, optionally convertible or partially convertible) for issue of which, funds have been received on or after May 1, 2007 would be considered as debt and should conform to the ECB policy.
  • Since these instruments would be denominated in Rupees, the rupee interest rate will be based on the swap equivalent of LIBOR plus the spread as permissible for ECBs of corresponding maturity.
Foreign Currency Exchangeable Bonds (FCEBs)
FCEBs means a bond expressed in foreign currency, the principal and interest in respect of which are payable in foreign currency, issued by an Issuing Company and subscribed to by a person who is a resident outside India, in foreign currency and exchangeable into equity share of another company, to be called the Offered Company, in any manner, either wholly, or partly or on the basis of any equity related warrants attached to debt instruments.
  • To attract more overseas fund, the Reserve Bank relaxed the external commercial borrowing (ECB) norms with fewer restrictions on end uses and allowed loans from sovereign wealth funds, pension funds and insurers. 
The revised ECB framework will comprise the following three tracks

TRACK I
Medium term foreign currency denominated ECB with Minimum Average Maturity (MAM) of 3/5 years.
TRACK II
Long term foreign currency denominated ECB with MAM of 10 years.
TRACK III
Indian Rupee denominated ECB with MAM of 3/5 years.

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