Page 67 - DMGT549_INTERNATIONAL_FINANCIAL_MANAGEMENT

International Financial Management

Notes 4.4.1 Sources of External Commercial Borrowings

ECBs may be raised from any internationally recognised source such as banks, export credit
agencies, suppliers of equipment, foreign collaborators, foreign equity holders, international
capital markets, etc.
1. Purpose of External Commercial Borrowings: ECBs are supposed to be utilised for meeting
foreign exchange cost of capital goods and services and also for project related rupee
expenditure up to certain limits. The end use to which funds can be put can be categorised
into:

Forex cost of capital goods and services.
For project related rupee expenditure in infrastructure projects in power, telecom
and railways. For telecom sector license fee payments is approved use of ECB.

For project related rupee expenditure subject to terms and conditions specified in
schemes.

Corporate borrowers able to raise long-term resources with an average maturity of
10 years and 20 years will be allowed to use the ECB proceeds up to USD 100 million
and USD 200 million respectively without any end use restrictions, i.e., for general
corporate objectives.

Not to be used in investment in stock markets and speculation in real estate.
2. Approvals Required: The following approvals are required before a corporate can raise an
ECB:

For ECB of minimum maturity of less than 3 years, approval from RBI alone is
required.
For ECB of minimum maturity of 3 years and above, sanction is required from the
ECB Division, Department of Economic Affairs, Ministry of Finance (MoF) and
thereafter approval is to be obtained from RBI.
An executed copy of the loan agreement is to be submitted to MoF before obtaining
the clearance from RBI, within three months from the date of obtainment of approval
from MoF.

3. Maturity Period for ECBs: The guidelines issued by the Ministry of Finance specify the
following minimum average maturities for the ECBs realised by the Indian corporates:

Minimum average maturity of three years for ECBs up to US$ 15 million equivalent;
Minimum average maturity of seven years for ECBs greater than US$ 15 million
equivalent;

The 100% Export Oriented Units (EOUs) are permitted ECB at a minimum average
maturity of three years even for amounts exceeding USD 15 million equivalent.

Did u know? Indian Development Financial Institutions (DFIs) and corporates engaged in
infrastructure projects in telecommunications and Oil Exploration and Development are
permitted to raise ECB at a minimum average maturity of five years even for borrowings
exceeding USD 15 million equivalent.
However, considering the fact that very few banks are ready to lock themselves up for commercial
borrowings, those too for India, at average maturities exceeding seven years and even if they do,

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