External Commercial Borrowings


External Commercial Borrowings ("ECB") refer to commercial loans in the form of bank loans, buyers' credit, securitized instruments (e.g. floating rate notes and fixed rate bonds) availed from non-resident lenders with minimum average maturity of three years. ECB can be accessed under two routes, viz:

  • Automatic route;
  • Approval route.



Automatic route

ECB for investment in real sector-industrial sector, especially infrastructure sector in India, will be under the automatic route (i.e. will not require RBI/Government approval), subject to prescribed regulatory compliance and the following key conditions.

Eligible borrowers

Corporates registered under the Companies Act, except financial intermediaries (such as banks, financial institutions ("FII's"), housing finance companies and NBFCs). Units in SESZ are allowed to raise ECB funds for their own requirement. However, they cannot transfer or on-lend ECB funds to sister concerns or any units in the Domestic Tariff Area.

Further, Non-Government Organizations ( "NGOs"), engaged in micro-finance activities, satisfying prescribed conditions are eligible to avail of ECB.

Recognized Lenders

Recognized lenders include internationally recognized sources such as:

  • International banks;
  • International capital markets;
  • Multilateral financial institutions (such as International Finance Corporation, Asian Development Bank, Commonwealth Development Corporation, etc);
  • Export credit agencies;
  • Suppliers of equipment;
  • Foreign collaborators
  • Foreign equity holders (other than erstwhile OCBs).

A "foreign equity holder" to be eligible as a "recognized lender" under the automatic route would require a minimum holding of equity in the borrower company as set out below:

  • For ECB of up to US$5 million- a minimum equity of 25% held directly by the lender.
  • For ECB of more than US$5 million-a minimum equity of 25% held directly by the lender and a debt-equity ratio not exceeding 4:1 (i.e. the proposed ECB not exceeding four times the direct foreign equity holding).

The Regulations also prescribe further conditions in case of provision of ECB by overseas organizations and individual lenders to NGOs engaged in micro-finance activity.

Amount and maturity

The limits for qualifying for the automatic route are:

  • ECB up to US$20 million or equivalent with minimum average maturity of three years;
  • ECB above US$20 million and up to US$500 million or equivalent with minimum average maturity of five years;
  • The maximum amount of ECB which can be raised by a corporate is US$500 million during a financial year;
  • NGOs engaged in micro-finance activities can raise ECB up to US$5million during a financial year;
  • ECB up to US$20 million can have call/put option provided the minimum average maturity of three years is complied with before exercising call/put option.