What is External Commercial Borrowings (ECB) ?

Definition:

  • ECBs defined as 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.
  • The Reserve Bank of India (RBI) introduced changes in external commercial borrowings (ECB) norms under which authorised money changing banks have been allowed to create a charge on securities.
  • The decision was taken with a view to liberalising, expanding the options of securities and consolidating various provisions related to creation of charge over securities for ECB at one place.
  • At present, the choice of security to be provided to the overseas lender or the supplier for securing ECB is left to the borrower.The relaxations are with immediate effect. It has been decided that AD Category-I banks may allow creation of charge on immovable assets, movable assets, financial securities and issue of corporate and / or personal guarantees in favour of overseas lender / security trustee, to secure the ECB to be raised / raised by the borrower
  • However, the new rules are subject to certain conditions. The underlying ECB must be in compliance with extant ECB guidelines, there should be a security clause in the Loan Agreement requiring the ECB borrower to create charge, and a no objection certificate will have to be obtained from an existing domestic lender.
  • Additionally, AD Category-I bank may permit creation of charge on immovable assets, movable assets, financial securities and issue of corporate and / or personal guarantees.