With a view to further liberalize the External Commercial Borrowings (‘ECB’) framework, RBI has, pursuant to the circular dated July 30, 2019 (‘ECB Circular’), introduced certain relaxations with respect to the end use for which Indian eligible borrowers are permitted to raise ECBs. Previously, ECB proceeds were not permitted to be utilized towards working capital, general corporate purposes and repayment of Rupee loans, except for when the ECB was availed from a ‘foreign equity holder’ (i.e., recognized lenders having either a minimum of 25% (twenty five percent) direct or 51% (fifty one percent) indirect equity holding in the borrowing entity, or a group company with a common overseas parent.) Further, on-lending for any of the aforementioned activities was also expressly prohibited.

Per the ECB Circular, eligible borrowers are now permitted to avail ECBs for the following purposes from all recognized lenders (excluding foreign branches / overseas subsidiaries of Indian banks), subject to the following conditions:

i.       ECBs for repayment / refinancing of rupee loans availed domestically for capital expenditure, subject to minimum average maturity period (‘MAMP’) of 7 (seven) years;

ii.    ECBs to non-banking financial companies (‘NBFCs’) for on-lending for repayment / refinancing of domestic rupee loans for capital expenditure, subject to MAMP of 7 (seven) years;

iii.     ECBs for repayment / refinancing of rupee loans availed domestically for purposes other than for capital expenditure, subject to MAMP of 10 (ten) years;

iv.      ECBs to NBFCs for on-lending for the aforesaid end-uses (i.e., repayment / refinancing of domestic rupee loans for purposes other than for capital expenditure), subject to MAMP of 10 (ten) years;

v.        ECBs for working capital purposes and general corporate purposes, subject to MAMP of 10 (ten) years;

vi.      ECBs to NBFCs for on-lending for working capital purposes and general corporate purposes, subject to MAMP of 10 (ten) years; and

vii.     ECBs for repayment of rupee loans availed domestically for capital expenditure in the manufacturing and infrastructure sectors, subject to being classified as SMA-2 or NPA, under any one-time settlement with lenders.

In addition to the above, the ECB Circular also permits domestic banks to assign rupee loans availed domestically for capital expenditure in manufacturing and infrastructure sectors to eligible ECB lenders (excluding foreign branches / overseas subsidiaries of Indian banks), subject to the resultant ECB complying with all-in-cost, MAMP and other relevant norms set out in the ECB framework. Under the erstwhile ECB framework, this was not permitted without approval from RBI.

On August 8, 2019, RBI has also updated the corresponding ‘Master Direction – External Commercial Borrowings, Trade Credits and Structured Obligations’ dated March 26, 2019.