Current · Source: Reserve Bank of India · RBI/2008-09/317 · issued 08 Dec 2008 · ~2 min read
Quick answerRBI has liberalised premature buyback of FCCBs. Under the automatic route, AD banks can allow buyback at a minimum 15% discount on book value using foreign currency funds or fresh ECB. Under the approval route, buyback at 25% discount up to USD 50 million per company is considered.
The rule, in the simplest words
Indian companies can buy back FCCBs at a discount using foreign currency funds or fresh ECB under the automatic route.
The automatic route allows a minimum 15% discount on the book value, while the approval route allows a 25% discount up to USD 50 million per company.
AD banks must verify that FCCB buybacks meet the minimum discount threshold and fund source requirements.
How it plays out — a real example
A forex & trade-finance officer in Indore, working at a designated AD bank, helps an Indian company buy back its FCCBs at a 15% discount on the book value using foreign currency funds. The officer verifies that the company has sufficient foreign currency funds to cover the buyback and ensures that the transaction meets all the necessary requirements.
What changed
RBI introduced two clear routes for FCCB buyback: an automatic route where AD banks can approve buybacks at a minimum discount of 15 per cent on the book value, and an approval route for buybacks at a minimum discount of 25 per cent on the book value up to USD 50 million of the redemption value per company. Previously, such buybacks were considered under the approval route. The automatic route now allows designated AD banks to process buybacks without prior RBI approval, subject to conditions.
What it means for you
Indian companies can now more easily reduce their FCCB liabilities by buying back bonds at a discount, using foreign currency funds or fresh ECB. For banks, this means increased processing responsibility under the automatic route, requiring careful verification of discount thresholds and fund sources. The approval route remains for larger or differently funded buybacks, with a USD 50 million cap per company.
What you must do
Verify that FCCB buyback under automatic route meets minimum discount of 15 per cent on the book value and funds are from foreign currency sources or fresh ECB compliant with norms.
For automatic route, ensure fresh ECB for buyback is co-terminus with the outstanding maturity of the original FCCB and if less than three years, all-in-cost capped at 6 months Libor plus 200 bps; for other cases, apply standard ECB cost ceilings.
For approval route, confirm buyback discount is at least 25 per cent on the book value, total buyback per company does not exceed USD 50 million of the redemption value, and funds are from internal accruals with auditor and bank certificates.
Submit approval route applications with supporting documents to RBI's ECB Division through the designated AD bank.
Maintain records of all FCCB buyback transactions for regulatory reporting and audit.
Who it affects
All Category-I Authorised Dealer Banks, Indian companies with outstanding FCCBs, RBI's Foreign Exchange Department (ECB Division)
❓ Common questions
What is the minimum discount required for FCCB buyback under the automatic route?
Under the automatic route, the buyback value must be at a minimum discount of 15 per cent on the book value of the FCCB.
Can a company buy back FCCBs using internal accruals without RBI approval?
No, if the buyback is funded by internal accruals, it must go through the approval route, which requires a minimum discount of 25 per cent on the book value and is capped at USD 50 million of the redemption value per company.
What is the all-in-cost ceiling for fresh ECB used to finance FCCB buyback if the ECB maturity is less than 3 years and co-terminus with the original FCCB?
For fresh ECB with maturity less than 3 years and co-terminus with the original FCCB, the all-in-cost ceiling is 6 months Libor plus 200 bps.
📜 Read the original circular — full text as issued by RBI
RBI/2008-09/317
A. P. (DIR Series) Circular No. 39
December 08, 2008
To,
All Category - I Authorised Dealer Banks
Madam / Sir,
Buyback / Prepayment of Foreign Currency Convertible Bonds (FCCBs)
Attention of Authorised Dealer Category - I (AD Category - I) banks is invited to Regulation No. 21 of Part III and Schedule I to the Notification No. FEMA 120 /RB-2004 dated July 7, 2004 , as amended from time to time, relating to FCCBs. Attention of AD Category - I banks is also invited to A. P. (DIR Series) Circular No.5 dated August 1, 2005 , A. P. (DIR Series) Circular No.60 dated May 21, 2007 , A. P. (DIR Series) Circular No. 4 dated August 7, 2007 , A. P. (DIR Series) Circular No. 43 dated May 29, 2008 , A.P. (DIR Series) No. 16 dated September 22, 2008 , A. P. (DIR Series) Circular No.20 dated October 10, 2008 and A. P. (DIR Series) No. 26 dated October 22, 2008 relating to instructions / guidelines in respect of External Commercial Borrowings, which are also applicable, mutatis mutandis, to FCCBs.
2. Under the extant ECB Guidelines, AD Category - I banks are permitted to allow prepayment of ECB up to USD 500 million without prior approval of the Reserve Bank, subject to compliance with the stipulated minimum average maturity period as applicable to the loan. Further, existing ECB can be refinanced by raising a fresh ECB, subject to the conditions that the fresh ECB is raised at a lower all-in-cost and the outstanding maturity of the original ECB is maintained. The existing provisions for prepayment and refinancing will continue, as hitherto.
3. As announced in para 4 (v) of the Press Release 2008:2009/697 dated November 15, 2008 , Reserve Bank has been considering proposals, under the approval route, from Indian companies for buyback of their FCCBs, provided the buyback is financed out of their foreign currency resources held in India or abroad and / or out of fresh external commercial borrowing (ECB) raised in conformity with the current ECB norms.
4. As announced in para 12 of the Press Release 2008-2009/842 dated December 6, 2008 , the existing policy on the premature buyback of FCCBs has been reviewed and it has been decided to liberalise the procedure and consider applications for buyback of FCCBs by Indian companies, both under the automatic and approval routes, as detailed hereunder:
A. Automatic Route:
The designated AD Category - I banks may allow Indian companies to prematurely buyback FCCBs, subject to compliance with the terms and conditions set out hereunder :
i) the buyback value of the FCCB shall be at a minimum discount of 15 per cent on the book value;
ii) the funds used for the buyback shall be out of existing foreign currency funds held either in India (including funds held in EEFC account) or abroad and / or out of fresh ECB raised in conformity with the current ECB norms; and
iii) where the fresh ECB is co-terminus with the outstanding maturity of the original FCCB and is for less than three years, the all-in-cost ceiling should not exceed 6 months Libor plus 200 bps, as applicable to short term borrowings. In other cases, the all-in-cost for the relevant maturity of the ECB, as laid down in A. P. (DIR Series) No.26 dated October 22, 2008 shall apply.
B. Approval Route :
The Reserve Bank will consider proposals from Indian companies for buyback of FCCBs under the approval route, subject to compliance with the following conditions:
i) the buyback value of the FCCB shall be at a minimum discount of 25 per cent on the book value;
ii) the funds used for the buyback shall be out of internal accruals, to be evidenced by Statutory Auditor and designated AD Category – I bank's certificate; and
iii) the total amount of buyback shall not exceed USD 50 million of the redemption value, per company.
Applications complying with the above conditions may be submitted, together with the supporting documents, through the designated AD Category - I bank, to the Chief General Manager-in-Charge, Reserve Bank of India, Foreign Exchange Department, ECB Division, Central Office, 11th Floor, Central Office Building, Shahid Bhagat Singh Road, Mumbai-400 001, for necessary approval.
5. General Conditions
In addition to the conditions set out above, the following additional conditions shall be applicable for the proposals both under the automatic and approval routes:
(i) The FCCB should have been issued in compliance with the extant guidelines.
(ii) The FCCB should have been registered with the Reserve Bank; the LRN number obtained and ECB 2 returns submitted up to date.
(iii) No proceedings for contravention of FEMA are pending against the company.
(iv) The right for buyback is vested with the issuer of FCCBs. However, the actual buyback is subject to the consent of the bond holders.
(v) The FCCBs bought back / repurchased from the holders must be cancelled and should not be re-issued or re-sold.
(vi) The buyback will not have any effect on the bond holders not opting for the buyback or on the non-participating bond holders of companies opting for the buyback.
(vii) The Indian company shall open an escrow account with the branch or subsidiary of an Indian bank overseas or an international bank for buying back the FCCBs to ensure that the funds are used only for the buyback.
6. The existing requirement of submission of ECB 2 return will continue as hitherto. Further, on completion of the buyback, a report giving details of buyback, such as, the outstanding amount of FCCBs, book value of FCCBs bought back, rate at which FCCBs bought back, amount involved, and source/s of funds may be submitted, through the designated AD Category - I bank, to the Chief General Manager-in-Charge, Reserve Bank of India, Foreign Exchange Department, ECB Division, Central Office, 11th Floor, Central Office Building, Shahid Bhagat Singh Road, Mumbai-400 001.
7. This facility will come into force with immediate effect and the entire procedure of buyback should be completed by March 31, 2009.
8. AD Category - I banks may bring the contents of this circular to the notice of their constituents and customers concerned.
9. The directions contained in this circular have been issued under sections 10(4) and 11 (1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions / approvals, if any, required under any other law.
Yours faithfully,
( Salim Gangadharan)
Chief General Manager-in-Charge
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2008-09/317 · issued 08 Dec 2008. The plain-English explanation above is BankPulse’s own independent summary.
Maintain records of all FCCB buyback transactions for regulatory reporting and audit.
💻 IT / Systems
Submit approval route applications with supporting documents to RBI's ECB Division through the designated AD bank.
📜 Compliance
Verify that FCCB buyback under automatic route meets minimum discount of 15 per cent on the book value and funds are from foreign currency sources or fresh ECB compliant with norms.
For automatic route, ensure fresh ECB for buyback is co-terminus with the outstanding maturity of the original FCCB and if less than three years, all-in-cost capped at 6 months Libor plus 200 bps; for other cases, apply standard ECB cost ceilings.
For approval route, confirm buyback discount is at least 25 per cent on the book value, total buyback per company does not exceed USD 50 million of the redemption value, and funds are from internal accruals with auditor and bank certificates.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template
Example: if you are a Compliance officer at a bank this circular applies to (All Category-I Authorised Dealer Banks, Indian companies with outstanding FCCBs, RBI's Foreign Exchange Department (ECB Division)), your first concrete step on “FCCB Buyback Rules Liberalised: Automatic & Approval Routes” is: “Verify that FCCB buyback under automatic route meets minimum discount of 15 per cent on the book value and funds are from foreign currency sources or fresh ECB compliant with norms.” (RBI issued this 08 Dec 2008).
Action required: Verify that FCCB buyback under automatic route meets minimum discount of 15 per cent on the book value and funds are from foreign currency sources or fresh ECB compliant with norms.
Action required: For automatic route, ensure fresh ECB for buyback is co-terminus with the outstanding maturity of the original FCCB and if less than three years, all-in-cost capped at 6 months Libor plus 200 bps; for other cases, apply standard ECB cost ceilings.
Action required: For approval route, confirm buyback discount is at least 25 per cent on the book value, total buyback per company does not exceed USD 50 million of the redemption value, and funds are from internal accruals with auditor and bank certificates.
Action required: Submit approval route applications with supporting documents to RBI's ECB Division through the designated AD bank.
Action required: Maintain records of all FCCB buyback transactions for regulatory reporting and audit.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
💬 Banker Discussion
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
BankPulse Compliance Evidence Pack — generated 05 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=4690&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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