What changed
RBI has liberalised ECB policy effective August 1, 2005. Key changes include allowing NBFCs to raise ECB with 5-year maturity from multilateral financial institutions, export credit agencies, etc., for infrastructure equipment leasing under the Approval Route, and permitting housing finance companies meeting specific criteria to issue FCCBs under the same route. The prepayment limit for ECB without RBI approval has been increased from USD 100 million to USD 200 million.
What it means for you
Banks and lenders can now facilitate larger ECB prepayments for clients without seeking RBI nod, reducing turnaround time. NBFCs and housing finance companies gain new funding avenues for infrastructure and housing, potentially boosting credit demand. Authorised dealers must update internal processes to handle the higher prepayment threshold and new approval-based ECB categories.
What you must do
- Update internal ECB prepayment processing limits to USD 200 million for authorised dealers to allow without prior RBI approval.
- Inform clients, especially NBFCs and housing finance companies, about the new ECB and FCCB options under the Approval Route.
- Ensure compliance with minimum average maturity requirements for all ECB transactions, including prepayments.
- Train staff on the revised ECB guidelines and the distinction between Automatic and Approval Routes.
Who it affects
Authorised dealer banks handling foreign exchange, Non-banking financial companies (NBFCs) financing infrastructure equipment leasing from specified lenders, Housing finance companies meeting specific criteria seeking foreign currency convertible bonds, Borrowers with existing ECB looking to prepay
What is the new prepayment limit for ECB without RBI approval?
Authorised dealers can now allow prepayment of ECB up to USD 200 million without prior RBI approval, increased from the earlier limit of USD 100 million. Amounts above this require RBI approval under the Approval Route.
Can NBFCs now raise ECB for any purpose?
No, NBFCs can only raise ECB with a minimum average maturity of 5 years from specified lenders (multilateral financial institutions, export credit agencies, etc.) to finance import of infrastructure equipment for leasing to infrastructure projects. This is under the Approval Route.
Are housing finance companies now eligible for FCCBs?
Yes, housing finance companies meeting specific criteria can issue Foreign Currency Convertible Bonds (FCCBs), but they must seek RBI approval under the Approval Route.