What changed
ECB amounts more than USD 20 million per borrower company per financial year must now be used solely for foreign currency expenditures and kept overseas; no remittance to India is allowed. For ECBs up to USD 20 million, rupee expenditure requires prior RBI approval under the Approval Route, while foreign currency use remains under Automatic Route with funds parked overseas. Existing loan agreements with registration numbers are exempt from these changes.
What it means for you
Banks must advise corporate clients that large ECB inflows for rupee needs are effectively restricted, pushing borrowers toward smaller ECB tranches or alternative funding. This curbs capital inflows to manage rupee appreciation and external sector stability. Lenders should review their ECB advisory processes and ensure compliance with the new parking and end-use rules.
What you must do
- Update internal ECB policy manuals to reflect the more than $20 million threshold for mandatory overseas parking and foreign currency end-use.
- Inform corporate clients that any ECB above $20 million per financial year cannot be remitted to India and must be used abroad.
- Guide borrowers seeking ECB up to $20 million for rupee expenditure to apply for RBI approval under the Approval Route.
- Verify that existing loan agreements with registration numbers are grandfathered; advise others to apply through AD banks.
- Monitor all ECB applications to ensure compliance with the new parking and end-use conditions from immediate effect.
Who it affects
Authorised Dealer Category I banks, Corporate borrowers availing ECB, Treasury and forex departments of banks, Compliance teams handling ECB approvals
What happens if a borrower needs ECB for rupee expenses exceeding $20 million?
Such borrowers cannot use the Automatic Route. They must either limit borrowing to $20 million and seek RBI approval for rupee expenditure, or arrange alternative funding. The circular does not provide for any exception beyond the $20 million threshold for rupee use.
Are existing ECB agreements affected by this circular?
No. Borrowers who have already entered into loan agreements and obtained loan registration numbers from RBI are exempt. Those with verifiable steps but no registration number may apply through their AD bank for consideration.
Does the $500 million automatic route limit still apply?
Yes, the circular explicitly states that all other aspects of ECB policy, including the $500 million limit per borrower per year under the Automatic Route, remain unchanged.