What changed
RBI issued a master circular consolidating all existing instructions on External Commercial Borrowings (ECB) and Trade Credits, revised up to January 5, 2012 and updated as on January 20, 2012. It replaced earlier circulars and was set to be withdrawn on July 1, 2012, replaced by an updated version. The circular covers both automatic and approval routes, including eligible borrowers, lenders, end-uses, and all-in-cost ceilings.
What it means for you
For banks, this circular provides a single reference point for ECB and trade credit norms, simplifying compliance. It clarifies that ECB includes loans, buyers' credit, suppliers' credit, and certain instruments like FCCBs, with a minimum average maturity of 3 years. Banks must ensure borrowers adhere to end-use restrictions and reporting requirements under FEMA.
What you must do
- Review the master circular to ensure all ECB and trade credit transactions comply with updated guidelines.
- Verify borrower eligibility, lender recognition, and end-use restrictions under automatic or approval routes.
- Ensure proper reporting of ECB and trade credits using Form ECB, Form 83, ECB-2, and Form TC as specified.
- Monitor all-in-cost ceilings and maturity requirements for each ECB or trade credit facility.
Who it affects
Category-I Authorised Dealer Banks, Indian companies availing ECB or trade credits, Non-resident lenders providing ECB or trade credits
What is the minimum average maturity for ECB under this circular?
ECB must have a minimum average maturity of 3 years, as per the circular.
Does this circular cover Foreign Currency Convertible Bonds (FCCBs)?
Yes, FCCBs are covered under the ECB policy, and they must comply with the relevant FEMA notification, specifically Notification FEMA No. 120/RB-2004 dated July 7, 2004.
What are the reporting requirements for trade credits?
Trade credits must be reported using Form TC, and banks must submit statements on guarantees/letters of undertaking as per the circular.