What is External Commercial Borrowing?
External Commercial Borrowing (ECB) refers to commercial loans availed by eligible Indian borrowers from recognized non-resident lenders. ECB provides an additional source of funds for Indian businesses and is regulated by RBI under the Foreign Exchange Management Act (FEMA).
Key Features of ECB
- Foreign Currency Loans: Raised in USD, EUR, JPY or other freely convertible currencies
- Recognized Lenders: International banks, foreign equity holders, foreign collaborators
- Flexible Routes: Available under Automatic Route and Approval Route
- End-Use Conditions: Specific permitted uses with certain restrictions
- Cost Ceiling: All-in-cost must be within prescribed limits
- Maturity Requirements: Minimum average maturity periods apply
Advantages of ECB
Access to Global Capital
Tap into international debt markets with potentially lower interest rates and longer tenures.
Currency Diversification
Access to multiple currencies can provide natural hedging for export-oriented businesses.
Larger Loan Amounts
International lenders can often provide larger ticket sizes than domestic banks.
Competitive Pricing
Access to international interest rates (LIBOR/SOFR-based) which may be lower than domestic rates.
ECB Routes: Automatic vs Approval
ECB can be raised under two routes: Automatic Route (no RBI approval needed) and Approval Route (prior RBI approval required).
| Parameter | Automatic Route | Approval Route |
|---|---|---|
| RBI Approval | Not required | Prior approval mandatory |
| Eligible Borrowers | Companies in specific sectors, FFIs, SEZs | Banks, FIs, others not eligible under Auto Route |
| Amount Limit | USD 750 million (specific sectors) | Case-by-case basis |
| Timeline | Immediate | 4-8 weeks for approval |
Eligible Borrowers and Lenders
Eligible Borrowers
- ✓ Companies registered under Companies Act (excluding banks)
- ✓ Units in Special Economic Zones (SEZs)
- ✓ Foreign Currency Convertible Bond (FCCB) issuers
- ✓ Non-Banking Financial Companies (NBFCs) - specified categories
- ✓ Port Trusts, EXIM Bank
- ✓ Startups (special framework)
Recognized Lenders
- ✓ International banks
- ✓ Foreign equity holders (minimum 25% equity)
- ✓ Foreign collaborators
- ✓ Export credit agencies
- ✓ International capital markets
- ✓ Foreign branch/subsidiary of Indian bank
Amount and Maturity Requirements
| ECB Category | Minimum Average Maturity | Amount Limit |
|---|---|---|
| Manufacturing Sector | 3 years | USD 750 million |
| Infrastructure Sector | 5 years | USD 750 million |
| Foreign Equity Holder | 5 years | USD 5 million or 3x FE earnings |
| Startups | 3 years | USD 3 million per FY |
End-Use of ECB Proceeds
ECB proceeds must be used for specific permitted purposes. RBI monitors end-use compliance strictly.
✓ Permitted End-Uses
- Investment in real sector (manufacturing, infrastructure)
- Overseas direct investment in Joint Ventures/WOS
- First stage acquisition of shares in disinvestment
- Payment for import of capital goods
- Interest during construction
- Local sourcing of capital goods
- Working capital purposes (specific categories)
- General corporate purposes (with limits)
- Refinancing of existing ECB
- Repayment of Rupee loans (specific cases)
✗ Prohibited End-Uses
- On-lending to other entities
- Investment in stock market
- Investment in real estate (except integrated townships)
- Working capital (general, with exceptions)
- General corporate purposes (beyond limits)
- Repayment of existing Rupee loans (general)
- Equity investment in domestic companies
All-in-Cost Ceilings
RBI prescribes all-in-cost ceilings to ensure ECB remains within reasonable cost parameters. The ceiling includes interest, fees, and other charges.
| ECB Maturity Period | All-in-Cost Ceiling |
|---|---|
| 3 years and up to 5 years | 300 bps over 6-month LIBOR/SOFR |
| More than 5 years | 450 bps over 6-month LIBOR/SOFR |
Note: Ceiling subject to periodic revision by RBI. Check current rates on RBI website before raising ECB.
Compliance and Reporting
| Compliance | Timeline | Form/Portal |
|---|---|---|
| Loan Registration | Within 7 days of signing | ECB Portal (ecbr.rbi.org.in) |
| ECB-2 Return | Within 7 working days of month-end | ECB Portal |
| Change in Terms | Within 7 days | ECB Portal |
| Final Repayment | Within 7 days of closure | ECB Portal |
Frequently Asked Questions
What is the difference between foreign equity holder ECB and regular ECB?
Foreign equity holder ECB is from a lender who holds at least 25% equity in the borrower. It has different limits (USD 5 million or 3x earnings) and typically 5-year maturity.
Can ECB be raised in Indian Rupees?
Yes, INR-denominated ECB is permitted from foreign equity holders with specific conditions including 3-year minimum maturity and 150 bps ceiling over G-sec yield.
What happens if ECB is not utilized as per end-use?
Misutilization can attract penalties, cancellation of ECB approval, and restrictions on future foreign borrowings. Unutilized funds must be repatriated.