What changed
The term 'debt' in debt-equity ratio is replaced with 'ECB liability' to reflect only ECB borrowings. Free reserves (including share premium in foreign currency) are now counted as equity for ECB calculations. Service sector units beyond hotels, hospitals, and software are eligible under approval route; indirect equity holders with 51% holding and group companies with common parent are also permitted.
What it means for you
Banks can now process ECB proposals with a clearer liability-equity ratio, reducing ambiguity. Including free reserves expands borrowing capacity for eligible firms. The approval route now covers more service sectors and indirect/group lenders, increasing lending opportunities but requiring careful monitoring of the 7:1 liability-equity cap.
What you must do
- Update internal ECB policy documents to reflect 'ECB liability-equity ratio' and include free reserves in equity calculations.
- Train staff to verify equity contributions from foreign lenders, including share premium in foreign currency.
- For approval route cases, ensure total ECB stock from a lender does not exceed 7 times the equity holding.
- Advise clients on expanded eligibility for service sector units and indirect/group company lenders.
Who it affects
Authorised Dealer Category I banks, Indian companies borrowing ECB from foreign equity holders, Service sector firms (training, R&D, miscellaneous services), Foreign equity holders (direct and indirect) and group companies
What is the new ECB liability-equity ratio?
The ratio replaces the old debt-equity ratio and considers only ECB liabilities (proposed plus outstanding) against equity, which now includes paid-up capital and free reserves (including share premium in foreign currency).
Can service sector companies other than hotels, hospitals, and software now get ECB from foreign equity holders?
Yes, under the approval route, service sector units like training institutions, R&D, and miscellaneous service companies are eligible borrowers if the loan is from foreign equity holders.
What is the maximum ECB stock allowed from a foreign equity lender under the approval route?
The total outstanding ECB stock (including proposed borrowing) from a foreign equity lender must not exceed 7 times the equity holding of the lender (directly, indirectly, or via common parent for group companies).