why our course! - anujjindal.in...masala bonds / rupee denominated bonds - a rupee denominated bond...
TRANSCRIPT
EXTERNAL COMMERCIAL BORROWINGS Page 1
WWW.ANUJJINDAL.IN 9999466225
EXTERNAL COMMERCIAL BORROWINGS WWW.ANUJJINDAL.IN
WHY OUR COURSE!
1) 1) Save Videos offline
2) 2) Downloadable &
Printable PDFs
3) 3) Weekly Revision Class -
#2019Pledge
4) 4) Sectional Tests &
Comprehensive Mocks
with All India Ranking
System
5) 5) We Check Your English
Papers. English is the most
scoring in Phase 6)
EXTERNAL COMMERCIAL BORROWINGS Page 2
WWW.ANUJJINDAL.IN 9999466225
External Commercial Borrowing
Meaning - ECBs are commercial loans raised by eligible resident entities from recognised
non-resident entities.
MAJOR CHANGES INTRODUCED:
Merging of tracks Eligible borrowers Recognized lender MAMP LSF
1. Types of External Commercial Borrowings:
I. Bank loans II. Bonds
III. Securitized instruments IV. Buyers’ credit and suppliers’ credit V. FCCBs and FCEBs
•Basically a loan availed by an Indian entity from a non resident lender. Most of these loans are provided by foreign commercial banks and other institutions. It is a loan availed from non-resident lenders with a minimum average maturity of 3 years.
What is External Commercial Borrowing?
EXTERNAL COMMERCIAL BORROWINGS Page 3
WWW.ANUJJINDAL.IN 9999466225
2. How to raise loans through ECB framework?
Available routes for raising ECBs?
Before Amendments
The framework for raising loans comprised of 3 mediums:
1. TRACK I: Medium term foreign currency denominated ECB with minimum average maturity of 3/5 years.
2. TRACK II: Long term foreign currency denominated ECB with minimum maturity of 10 years
3. TRACK III: Indian Rupee denominated ECB with minimum average maturity of 3/5 years
After Amendments
Merging of tracks, I and II as "Foreign Currency denominated ECB" and merging of track III
and Rupee denominated Bonds framework as " Rupee Denominated ECB".
Automatic route Approval route
EXTERNAL COMMERCIAL BORROWINGS Page 4
WWW.ANUJJINDAL.IN 9999466225
# It is important to know that Rupee Denominated Bonds (RDB) are also known as Masala
Bonds.
3) What are the routes available for raising funds through ECB? ECBs can be raised either under the automatic route or under the approval route.
• For the automatic route, the cases are examined by the Authorised Dealer Category-I (AD Category-I) banks.
• Under the approval route, the prospective borrowers are required to send their requests to the RBI through their ADs for examination.
4) What is the procedure of Raising ECB?
• For approval route cases, the borrowers may approach the RBI with an application in prescribed format Form ECB for examination through their AD Category I bank. Such cases shall be considered keeping in view the overall guidelines, macroeconomic situation and merits of the specific proposals.
•Initially the ECBs were divided into tracks, now the new ECB policy has simply merged tracks into two categories: Foreign Currency denominated ECB and INR denominated ECB.
•Now since we have merged RDB into INR denominated ECB, prior RDB approval is no longer required for issuing RDB providing all other conditions are compiled with.
The merging of tracks and how it impacts the economy ?
Masala Bonds / Rupee Denominated Bonds - A rupee denominated bond is a bond issued by an Indian entity in foreign markets and the interest payments and principal reimbursements are denominated (expressed) in rupees.
EXTERNAL COMMERCIAL BORROWINGS Page 5
WWW.ANUJJINDAL.IN 9999466225
• ECB proposals received in the Reserve Bank above certain threshold limit (refixed from time to time) would be placed before the Empowered Committee set up by the Reserve Bank.
• The Empowered Committee will have external as well as internal members and the Reserve Bank will take a final decision in the cases taking into account recommendation of the Empowered Committee. Entities desirous to raise ECB under the automatic route may approach an AD Category I bank with their proposal along with duly filled in Form 83
5) Components of Raising ECB
5.1) Eligibility Criteria for borrowing under ECB
Before amendments were made there were 3 tracks as per the old pattern the eligibility
criteria for borrowers is:
Eligiblity criteria for borrowing under ECB
Recognized lenders under ECB
Currency of ECB
Maturity period of ECB
EXTERNAL COMMERCIAL BORROWINGS Page 6
WWW.ANUJJINDAL.IN 9999466225
Track 1 Track 2 Track 3
Companies in following sectors:
• Manufacturing sector
• Software development
• Shipping and airlines companies
• Units in SEZs
• Small Industries and Development Bank of India
• Exim Bank (approval route)
All entities under Track I
• Companies in infrastructure sector (definition aligned with Harmonised Master List of Government of India)
• Holding companies
• Core investment companies
• REITs and INVITs registered with SEBI
• All entities listed under Track II
• All NBFCs
• Entities engaged in micro finance activities, subject to conditions
• Companies in Miscellaneous Services, viz.
• R&D
• Training (excluding educational institutes)
• Companies supporting infrastructure o Logistic services
• SEZs/NMIZs Developers
After Amendments there were 2 tracks and these 2 tracks are namely:
Foreign currency denominated ECB and Rupee denominated ECB.
All entities eligible to receive FDI are eligible to raise ECB Further, the following entities are also eligible to raise ECB: i. Port Trusts; ii. Units in SEZ; iii. SIDBI; and iv. EXIM Bank of India.
Registered entities engaged in micro-finance activities i.e. registered Not for Profit companies, registered societies/trusts/ cooperatives and Non-Government Organisations.
Note: FEMA 3(R) has amended the definition of an Indian entity to include a LLP formed and
registered in India under the LLP Partnership Act,2008
EXTERNAL COMMERCIAL BORROWINGS Page 7
WWW.ANUJJINDAL.IN 9999466225
New ECB framework defines eligible borrower to include all entities eligible to receive FDI
INDIVIDUAL LIMITS
Borrower category Eligible limit (USD in a million)
Companies in infrastructure and manufacturing sectors, NBFC-IFC, NBFC-
AFC, Holding companies and core investment companies
750
Companies in the software and development sector
200
Entities engaged in micro finance activities 100 Others 500
The revised ECB framework has provided a single limit of USD 750 million or equivalent
per financial year irrespective of the category of borrower.
The limit of Start-up remains constant at USD 3 million or equivalent per financial year
either in INR or any convertible foreign currency or a combination of both.
5.2) Recognized lenders under ECB
The previous ECB framework defined recognized lender for each track. As per the revised
ECB framework, the overseas lender needs to be a resident of FATF or IOSCO compliant
country.
The concept of Recognized Lender simplified
EXTERNAL COMMERCIAL BORROWINGS Page 8
WWW.ANUJJINDAL.IN 9999466225
• International Banks • International Capital Markets • Suppliers of equipment • Foreign collaborators • Foreign Equity Holders • Export Credit Agencies • Regional Financial Institutions • Multilateral Financial Institutions
As per the amendments, some more institutions are included in the list
(A) Multilateral and Regional Financial Institutions where India is a member
country are considered as recognised lenders;
(B) Individuals as lenders can only be permitted if they are foreign equity holders or for
subscription to bonds/debentures listed abroad; and
(C) Foreign branches / subsidiaries of Indian banks are permitted as recognised lenders only
for Foreign currency denominated ECB (except FCCBs and FCEBs).
FATF - The objectives of the FATF are to set standards and promote effective
implementation of legal, regulatory and operational measures for combating money
laundering, terrorist financing and other related threats to the integrity of the international
financial system. The FATF is therefore a “policy-making body” which works to generate the
necessary political will to bring about national legislative and regulatory reforms in these
areas.
IOSCO- Association of organisations that regulate the world’s securities markets.
Recognized Lenders eligible under ECB Framework
What do you understand by FATF or IOSCO?
EXTERNAL COMMERCIAL BORROWINGS Page 9
WWW.ANUJJINDAL.IN 9999466225
5.3) Currency of ECB
ECB can be raised in Indian Rupees (INR) and / or any convertible currency. Any entity
raising INR denominated ECB is not permitted to convert the liability arising out of this ECB
into foreign currency liability in any manner or assuming foreign currency risk in any manner
by either entering into a derivative contract or otherwise
Parameter Foreign currency denominated ECB
INR denominated ECB
Currency of Borrowing Any freely convertible Foreign currency
Indian Rupee
5.4) Maturity Period of ECB
To understand the dynamics of maturity period, we need to understand the term “Minimum
Average Maturity Period” is defined as weighted average of all disbursements taking each
disbursement individually and its period of retention by the borrower for the purpose of
ECBs.
The new framework has prescribed a uniform MAMP of three years for all types of ECB
irrespective of amount involved.
• Manufacturing sector companies raising up to USD 50 million or equivalent per financial year can have MAMP of one year and
• ECB raised from foreign equity holder lending for meeting working capital needs, general corporate purpose or repayment of rupee loan to have MAMP of five years.
• The reduced MAMP may impact the borrowers in the infrastructure sector which earlier enjoyed MAMP of 10 years.
EXTERNAL COMMERCIAL BORROWINGS Page 10
WWW.ANUJJINDAL.IN 9999466225
6) The framework of ECB regarding End-use restrictions:
Revised Framework under the circular
FCY ECB and INR ECB: The end use restrictions in case of both FCY ECB and INR ECB are (a) real estate activities; (b) investment in capital market; (c) equity investments; (d) repayment of Rupee loans (except if from foreign equity holder); (e) working capital purposes and general corporate purposes (except if from foreign equity holder); and (f) on-lending for the above activities.
7) End Use Prescription of EBC
I) ECB proceeds can be utilised for capital expenditure in the form of:
a) Import of capital goods including payment towards import of services, technical know-how and license fees, provided the same are part of these capital goods. b) Local sourcing of capital goods. c) Beginning a new project. d) Modernisation /expansion of existing units. e) Overseas direct investment in Joint ventures (JV)/ Wholly owned subsidiaries (WOS). f) Acquisition of shares of public sector undertakings at any stage of disinvestment under the disinvestment programme of the Government of India. g) Refinancing of existing trade credit raised for import of capital goods. h) Payment of capital goods already shipped / imported but unpaid.
ii) SIDBI can raise ECB only for the purpose of on-lending to the borrowers in the Micro,
Small and Medium Enterprises (MSME sector).
iii) Units of SEZs can raise ECB only for their own requirements.
iv) Shipping and airlines companies can raise ECB only for import of vessels and aircrafts
respectively.
EXTERNAL COMMERCIAL BORROWINGS Page 11
WWW.ANUJJINDAL.IN 9999466225
8) All in Cost
An all-in cost is every cost involved in a financial transaction. All-in costs can be used to
explain the total fees and interest included in a financial transaction, such as a loan or CD
purchase, or in a securities trade. By comparing all-in costs, investors and borrowers can
more easily compare net gain potential.
It includes: Rate of interest, other fees expenses, charges, guarantee fees, Export Credit
Agency charges whether paid in foreign currency or Indian rupees but will not include
commitment fees and withholding tax payable in INR
9) Late submission fees introduced
Delay in reporting of the drawdown of ECB proceeds before obtaining LRN or in delay in submission
of Form ECB 2 returns can now be regularized by payment of late submission fees
Sr. NO. Type of return/form Period of delay Applicable LSF 1 Form ECB 2 Up to 30 calendar
days from due date of submission
INR 5000
2 Form ECB 2/ Form ECB Up to three years from due date of submission/ date of drawdown
INR 50000 per year
3 Form ECB 2/ Form ECB Beyond three years from due date of submission/ date of drawdown
INR 100000 per year
NOTE: Revised ECB framework does not cover Trade Credit related provisions and it appears that a
separate trade credit framework would be introduced
EXTERNAL COMMERCIAL BORROWINGS Page 12
WWW.ANUJJINDAL.IN 9999466225
Q.1) Track III medium along with one more type of securities together form INR
denominated ECB. What are these securities?
*[a] Masala Bonds
[b] Private funds
[c] Borrowings
[d] None of these
Q.2) Which of the following benefits are available to Rupee Denominated Bonds being a
part of INR denominated ECB?
[a] RDB can be used to finance loans
[b] RDB can be repaid in foreign currency
*[c] No prior approval is required before issuing RDB
[d] None of the above
Q.3) Why do you think it is important for the recognized lender to be a resident of FATF
approved nation?
[a] FATF approval ensures that the nation is financially stable
[b] FATF approval ensures that their currency is well recognized internationally
*[c] FATF approval ensures that the nation abides by the principles of generating regulatory
reforms.
[d] FATF approval ensures free trade among nations.
EXTERNAL COMMERCIAL BORROWINGS Page 13
WWW.ANUJJINDAL.IN 9999466225
HALL OF FAME OUR TOPPERS IN RBI | SEBI | UGC
Click ON IMAGE/LINK TO WATCH VIDEO
EXTERNAL COMMERCIAL BORROWINGS Page 14
WWW.ANUJJINDAL.IN 9999466225
OUR COURSES Click ON IMAGE/LINK TO KNOW MORE