What changed
RBI issued a Master Circular consolidating all prior instructions on ECB and Trade Credits into a single document, with underlying circulars listed in the Appendix. The circular includes a sunset clause, standing withdrawn on July 1, 2008, replaced by an updated version. Key provisions cover eligible borrowers, lenders, amount, maturity, all-in-cost ceilings, end-use restrictions (including prohibited end-uses), and reporting arrangements.
What it means for you
Banks must ensure that ECB transactions comply with the consolidated guidelines, especially the Automatic Route for real sector investments and the exclusion of financial intermediaries as borrowers. The sunset clause requires banks to stay alert for the updated circular in 2008. Trade credit rules for imports are also part of this master circular, affecting how banks handle short-term foreign currency credit.
What you must do
- Review and update internal ECB processing procedures to align with the consolidated Master Circular.
- Ensure that ECB applications under Automatic Route are verified for eligible borrowers (corporates excluding financial intermediaries, NGOs with conditions) and prohibited end-uses as listed in the circular.
- Monitor the sunset clause and prepare for the replacement circular by July 1, 2008.
- Train staff on the all-in-cost ceilings and maturity requirements for both ECB and Trade Credits.
- Maintain proper reporting of ECB and Trade Credits as per the circular's annexures.
Who it affects
All banks authorised to deal in foreign exchange, Corporate borrowers raising ECB (excluding financial intermediaries, individuals, trusts, non-profit organisations), NGOs engaged in microfinance activities meeting eligibility conditions, Importers using trade credits for imports into India
What is the minimum average maturity for ECB under this circular?
ECB must have a minimum average maturity of 3 years, as per the definition in Part I of the circular.
Can financial intermediaries like banks or NBFCs raise ECB under Automatic Route?
No, financial intermediaries such as banks, financial institutions, housing finance companies, and NBFCs are not eligible borrowers under the Automatic Route.
What happens after July 1, 2008?
This Master Circular will stand withdrawn on July 1, 2008, and will be replaced by an updated Master Circular on the same subject.