RBI revisits ECB provisions for infra-sector

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Customer Care No. 91-11-45562222
RBI revisits ECB provisions for infra-sector
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• Background
• The basic objective of the extant External
  Commercial Borrowings (ECB) policy is to
  supplement domestic capital for creation of
  capital assets in the country, limited by
  considerations for capital account management.
  The earlier ECB policy1 had gone through thorough
  revamping during the month of November, 20152
  (Framework, 2015) based on the recommendations
  made by the Sahoo Committee, under the
  chairmanship of M.S Sahoo, in February, 20153.
  This framework brought in a host of changes in
  the ECB framework.
• Salient features of Framework, 2015 are as
  under-
• 1. Inclusion of financial lease as a forms of
  borrowings
• 2. Relaxing rules for NBFCs but restricting it to
  INR denominated borrowings
• 3. Segmenting the Minimum Average Maturity (MAM)
  in three tracks - Track I, Track II, Track III
• 4. A more liberal approach, with fewer
  restrictions on end uses, higher all-in-cost
  ceiling, etc. for long term foreign currency
  borrowings as the extended term makes repayments
  more sustainable and also minimizes roll-over
  risks for the borrower
• 5. A more liberal regime for INR denominated ECBs
  where the currency risk is borne by the lender
• 6. Expansion of the list of overseas lenders to
  include long-term lenders, such as, Insurance
  Companies, Pension Funds, Sovereign Wealth Funds

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• 7. Only a small negative list of end-use
  restrictions applicable in case of long-term ECB
  ( Track II) and INR denominated ECB ( Track III)
• But, some restrictive provisions of the
  Framework, 2015 were causing some bottle-necks in
  infusing external financials. Hence, considering
  the dire need of external funding sources, and to
  cater to the needs of the infrastructure sector,
  the extant ECB guidelines have been reviewed. The
  present amendment mainly seems to focus on the
  infrastructure sector amongst some more changes.
  The list of eligible borrowers in the Framework,
  2015 seemed somewhat rigid and hence to overcome
  this issue the list has been enhanced by allowing
  more eligible borrowers. This move has been taken
  to allow more investments seep into the
  infrastructure sector. For better monitoring of
  the proceeds, the requirement of a new policy has
  also been inserted for Track-I borrowers.
• The present amendment4 addresses some of the
  issues pertaining to Framework, 2015 which has
  been analyzed in this note. Also a comparative
  study has been made with regard to the changes
  brought.
• 1.1. Additional compliances for newly added
  sectors in track-I
• 1.The following sectors added via the present
  amendment under Track-I are to have a board
  approved risk management policy-
• a. Infrastructure Sector
• b. NBFC-IFC

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• c. NBFC-AFC
• d. CICs
• e. Holding Companies
• 2. Moreover, the designated AD-Category I bank
  has the onus to verify with the compliance of the
  100 hedging requirements by the entities.
• 3. The position is required to be communicated to
  RBI through ECB 2 return. This ensures further
  monitoring the proceeds as well as securing the
  fears of the lenders against any losses.
• 1.2. Infrastructure sector
• 1. In the Framework, 2015, infrastructure sector
  companies were allowed to borrow only under Track
  II and Track-III, to borrow for all purposes
  except for real-estate activities, investing in
  the capital market, equity investment in domestic
  market, on-lending to a company carrying out any
  of the mentioned activities and purchase of land.
  This meant that borrowing benefits of Track-I
  were not available.

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• 2. The present amendment, extending the
  Framework, 2015, brings infrastructure activities
  under Track-I, meaning they may raise ECB with
  MAM of 5 years too. The proceeds of ECB raised
  under this track, can be used only for the
  permitted end-use allowed under Track-I. The MAM
  of 5 years on infrastructure sector for borrowing
  under Track-I, is a new requirement. The ECB
  under this route would be subject to 100
  hedging. This would attract more investors, in
  turn fueling the infrastructure sector.
• 1.3. NBFC-IFC and NBFC-HFC
• 1. In the Framework, 2015, though all NBFCs were
  made eligible to borrow under Track-III, their
  access was restricted to only INR denominated
  ECBs. The cap of 75 for automatic route, which
  was there in the earlier policy, was also removed
  via the Framework, 2015.
• 2. In the present amendment, NBFC-IFCs,
  NBFC-AFCs, have been made eligible to borrow also
  under Track-I, subject to 100 hedging apart
  from their existing eligible tracks. We can also
  see that the maturity period has been made
  longer, i.e. 5 years, as before. Also, they can
  use the proceeds only for financing
  infrastructure if, the ECB is raised under
  Track-I.
• 1.4. CICs and Holding Companies
• 1. Under the Framework, 2015, CICs and Holding
  Companies could borrow under Track II and Track
  III, which meant that these entities could borrow
  long-term foreign currency denominated ECB with
  MAM of 10 years or Indian Rupee Denominate ECBs
  with MAM of 3/5 years.

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• 2. Holding Companies and CICs have been made
  eligible borrowers under Track-I under the
  present amendment,subject to using those proceeds
  only inon-lending to infrastructure SPVs.
• 3. In the Old Policy, CICs and Holding Companies
  had similar end-use restrictions which were
  removed in the Framework, 2015, by widening the
  permitted end-use beyond on-lending to SPVs but,
  restricted to borrowing under Track-II only.
• 1.5. Enhanced limit of borrowing by the
  NBFC-IFCs, NBFC-AFCs, Holding Companies and CICs
• The limits to borrow by the aforementioned
  entities have been made akin to limits applicable
  to infrastructure sector (currently USD 750
  million). In the Framework, 2015 these entities
  were allowed to borrow upto USD 500 million,
  which was applicable to entities which were not
  specifically provided any separate limit. This
  enhances the scope of amount that can be borrowed
  by these entities.
• 1.6. "Exploration, Mining and Refinery" sectors
  to be regarded as part of infrastructure sector
• 1. For the purpose of ECB, "Exploration, Mining
  and Refinery" sectors are to be regarded as part
  of infrastructure sector.
• 2. This has not been specified in the harmonized
  list but was previously covered under earlier
  framework for end-use purpose. Framework, 2015
  had not included this segment.
• 3. Through present amendment this has been added
  back, hence allowing ECB to be used for
  exploration, mining and refinery.

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