Am I eligible for External Commercial Borrowings (ECB)

Mr. Keshavaiah, owner of an educational institution (Trust) wanted to know whether his institution is eligible to take ECB (say, foreign loan or loan from Non Resident lenders). He was living peacefully with whatever he had. It’s only after one of his extraordinarily intelligent friend suggested him to avail loans in Millions of dollars from foreign sources, he became restless. If he could get loan at a cheaper rate (say, 5-6%), in millions of dollars, why not! Who doesn’t want money sirji?

External Commercial Borrowings (ECB) refers to commercial loan in the form of bank loan, buyer’s credit, suppliers credit availed from non-resident lenders (means not the rupee loan from loan banks such as SBI, Canara Bank, etc)

Whether everyone is eligible to avail this loan?

No. The Reserve Bank of India (RBI) has listed out the guidelines (under automatic route). They are 

1. Corporates can raise ECB 

2. Individuals, Trust (other than those engaged in Micro finance activities) and Non-Profit making organizations are not eligible for ECB 

3. Units in Special Economic Zones (SEZ) are allowed to raise ECB for their own requirement. However, they cannot transfer or on-lend ECB funds to sister concerns or any unit in the Domestic Tariff Area (DTA) 

4. NBFCs-IFCs are permitted to avail of ECBs for on-lending to the infrastructure sector as defined under the ECB policy 

5. NBFCs-AFCs are permitted to avail of ECBs for financing the import of infrastructure equipment for leasing to infrastructure projects 

6. Non-Government Organizations (NGOs) engaged in micro finance activities are eligible to avail of ECB 

7. Corporates in the services sector viz. hotels, hospitals and software sector

RBI has also allowed certain section of borrowers under approval route. Some of them are –

1. ECB with minimum average maturity of 5 years by Non-Banking Financial Companies (NBFCs) from multilateral financial institutions, reputable regional financial institutions, official export credit agencies and international banks to finance import of infrastructure equipment for leasing to infrastructure projects

2. Multi-State Co-operative Societies engaged in manufacturing activity and satisfying the following criteria i) the Co-operative Society is financially solvent and ii) the Co-operative Society submits its up-to-date audited balance sheet

3. Eligible borrowers under the automatic route other than corporates in the services sector viz. hotel, hospital and software and in the miscellaneous  services sector can avail of ECB beyond USD 750 million or equivalent per financial year

4. Corporates in the services sector viz. hotels, hospitals and software sectors and in miscellaneous services (as given at I(A)(i)(j) above) can avail of ECB beyond USD 200 million or equivalent per financial year. ECB for corporates in miscellaneous services is permitted only from direct / indirect equity holders and group companies

So, the educational trust is not allowed to avail ECB. Many people waste their valuable time and energy in scouting for big money. In the process, many agents and brokers will also make their living!

Thought for the day

Cheating is a choice, not a mistake

NEXT: Repatriation of funds from India by Non Resident Indians (NRI) and Resident Indians

Check: FEMA/RBI Related Artilces: 

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