Query:
Can an Indian corporate bororw USD from outside India? Advise in detail?
Answer:
External Commercial Borrowings by Indian Corporates
1. Introduction
External Commercial Borrowings (ECBs) are an important source of foreign currency
funding for Indian corporates. ECBs allow eligible resident entities to borrow from
recognized non-resident entities in accordance with the framework decided by the Reserve
Bank of India (RBI) in consultation with the Government of India.
2. Relevant Standard/Law References
The key regulations governing ECBs by Indian corporates are:
a) Foreign Exchange Management Act, 1999 (FEMA)
b) Foreign Exchange Management (Borrowing and Lending) Regulations, 2018
c) Master Direction – External Commercial Borrowings, Trade Credits and Structured
Obligations issued by RBI
The ECB framework allows eligible resident entities to raise ECBs from recognized
non-resident entities subject to certain conditions Foreign Exchange Management
(Borrowing and Lending) Regulations, 2018, Schedule I, page 6.
3. Detailed Explanations
i. Eligibility for raising ECBs: All entities eligible to receive Foreign Direct Investment (FDI)
as per the extant FDI policy are eligible to raise ECBs. This includes companies in
manufacturing, software development, hotels, hospitals, etc. Foreign Exchange
Management (Borrowing and Lending) Regulations, 2018, Schedule I, para 3, page 6.
ii. Forms of ECB: ECBs can be raised in freely convertible foreign currencies as well as
Indian Rupees. The forms include bank loans, floating/fixed rate notes, bonds, debentures,
etc. Foreign Exchange Management (Borrowing and Lending) Regulations, 2018, Schedule
I, para 2, page 6.
iii. Recognized lenders: Lenders should be residents of Financial Action Task Force (FATF)
or International Organization of Securities Commissions (IOSCO) compliant countries.
Multilateral and regional financial institutions where India is a member are also recognized
lenders Foreign Exchange Management (Borrowing and Lending) Regulations, 2018,
Schedule I, para 5, page 6.
iv. Minimum average maturity: The minimum average maturity period (MAMP) for ECBs is
3 years. However, the RBI may prescribe a different MAMP for certain sectors or amounts
Foreign Exchange Management (Borrowing and Lending) Regulations, 2018, Schedule I,
para 4, page 6.
v. All-in-cost ceiling: For foreign currency ECBs, the maximum spread over 6-month LIBOR
or applicable benchmark is 450 basis points per annum. For Rupee denominated ECBs,
the ceiling is 450 basis points over the prevailing yield of Government of India securities of
corresponding maturity Foreign Exchange Management (Borrowing and Lending)
Regulations, 2018, Schedule I, para 6, page 7.
vi. End-use restrictions: ECB proceeds can be used for all purposes except those
prescribed in the negative list by RBI. Generally, ECBs cannot be used for real estate
activities, investment in capital markets, equity investments, working capital purposes or
general corporate purposes Foreign Exchange Management (Borrowing and Lending)
Regulations, 2018, Schedule I, para 7, page 7.
vii. Individual limits: All eligible borrowers can raise ECB up to USD 750 million or
equivalent per financial year under the automatic route. For startups, the limit is USD 3
million per financial year Foreign Exchange Management (Borrowing and Lending)
Regulations, 2018, Schedule I, para 8, page 7.
viii. Security: The borrower may provide security to the lender/suppliers as specified by
RBI. This may include corporate or personal guarantees Foreign Exchange Management
(Borrowing and Lending) Regulations, 2018, Schedule I, para 9, page 7.
ix. Parking of ECB proceeds: Pending utilization, ECB proceeds can be parked abroad or in
India as per RBI directions Foreign Exchange Management (Borrowing and Lending)
Regulations, 2018, Schedule I, para 10, page 7.
x. Reporting requirements: Borrowers must obtain a Loan Registration Number (LRN) from
RBI before drawing down the ECB. Monthly ECB-2 returns must be submitted to RBI
Foreign Exchange Management (Borrowing and Lending) Regulations, 2018, Schedule I,
para 11-12, page 7.
4. Used Cases/Interpretations & Disclosures by the listed entities
Apollo Tyres Limited – 2024: The company has raised multiple ECBs from banks with the
following key features:
º Amounts ranging from USD 70-85 million equivalent
º Interest rates of 0-1.25% above USD-SOFR
º 3 equal annual installments starting from FY 2022-23
º Secured by first pari-passu charge on movable and immovable assets
IIFL Finance Limited – 2024: The company has raised the following ECBs:
º JPY denominated ECB equivalent to USD 50 million in FY 2023-24
º USD 50 million ECB in previous year
º USD 100 million ECB in previous year
Indian Renewable Energy Development Agency Limited – 2021: The company has raised
foreign currency borrowings from multilateral/bilateral agencies like ADB, World Bank, KfW,
AFD, JICA and EIB. These have been converted to INR loans through currency swaps and
hedging transactions with banks. The hedging has been done in multiple tranches with
different maturities. Indian Renewable Energy Development Agency Limited, page 155
5. Summary
Indian corporates can borrow from overseas lenders through the ECB route subject to RBI
regulations. Key aspects include:
º Eligibility based on FDI policy
º Minimum 3 year average maturity
º All-in-cost ceilings of 450 bps over benchmark rates
º End-use restrictions prohibiting speculative activities
º Individual borrowing limits of USD 750 million per year under automatic route
º Mandatory reporting and loan registration with RBI
ECBs provide an avenue for Indian companies to access foreign currency funding, subject
to regulatory safeguards. Proper structuring and compliance with RBI guidelines is critical
for Indian corporates raising ECBs. Companies should evaluate their funding needs,
assess eligibility, and ensure adherence to all regulatory requirements when considering
ECBs as a financing option.
6. Attribution
The information provided in this response is based on Foreign Exchange Management
(Borrowing and Lending) Regulations, 2018 as issued by the Reserve Bank of India. The
specific regulations referenced are Schedule I of the Foreign Exchange Management
(Borrowing and Lending) Regulations, 2018. For complete and authoritative guidance,
please refer to the full Foreign Exchange Management (Borrowing and Lending)
Regulations, 2018 available through the Reserve Bank of India website.
ECB Guidance
