What changed
Previously, proposals for creating charge on immovable assets, financial securities, or guarantees for ECB required RBI approval. Now, AD Category-I banks can directly convey 'no objection' under FEMA, 1999, subject to conditions like co-terminus charge period and compliance with ECB guidelines.
What it means for you
This liberalization streamlines ECB security creation, reducing RBI's direct involvement and speeding up borrower processes. Banks must ensure due diligence on ECB compliance, loan agreements, and LRN. For lenders, it clarifies that charge enforcement must involve sale to residents and repatriation for ECB repayment.
What you must do
- Verify underlying ECB compliance with extant guidelines before issuing no-objection.
- Ensure loan agreement includes a security clause and is signed by both parties.
- Confirm borrower has obtained Loan Registration Number (LRN) from RBI.
- For immovable assets, ensure charge period is co-terminus with ECB maturity and enforce sale only to residents.
- For financial securities, obtain auditor certificate on end-use of ECB proceeds.
Who it affects
AD Category-I banks, ECB borrowers (resident companies), Overseas lenders and security trustees, Promoters pledging shares for ECB
What conditions must AD banks check before issuing no-objection for ECB security?
Banks must ensure the ECB complies with extant guidelines, the loan agreement has a security clause signed by both parties, and the borrower has obtained an LRN from RBI.
Can overseas lenders acquire immovable assets in India through charge enforcement?
No. The no-objection does not permit overseas lenders to acquire property; on enforcement, the asset must be sold only to a resident Indian, and proceeds repatriated to repay the ECB.
What happens if pledged shares are invoked for ECB security?
Transfer of shares upon invocation must follow the extant FDI policy. The pledge period must be co-terminus with the ECB maturity.