ECB Policy: IFC Leverage Ratio Certification by AD Banks
Current · Source: Reserve Bank of India · RBI/2011-12/367 · issued 25 Jan 2012 · ~2 min read
Quick answerRBI now requires AD Category-I banks to certify the leverage ratio (outside liabilities/owned funds) of Infrastructure Finance Companies (IFCs) before forwarding ECB proposals under the approval route. This adds a compliance step for banks processing IFC ECB requests above 50% of owned funds.
The rule, in the simplest words
If an Infrastructure Finance Company (IFC) wants to borrow more than 50% of its own money from outside India, the bank must check and confirm the IFC's 'leverage ratio' (how much it owes compared to what it owns).
The bank must send this confirmation to RBI when asking for special permission for the loan.
All other rules about borrowing from outside India stay the same.
How it plays out — a real example
A forex & trade-finance officer in Indore receives an ECB request from an IFC wanting to borrow 60% of its owned funds. Before forwarding the proposal to RBI, the officer calculates the IFC's outside liabilities divided by owned funds, certifies the leverage ratio, and attaches it to the application, ensuring the bank meets the new compliance step.
What changed
Previously, IFCs could avail ECBs up to 50% of owned funds under automatic route, and above that under approval route without explicit leverage ratio certification. Now, AD Category-I banks must certify the leverage ratio of IFCs when forwarding approval-route ECB proposals to RBI. All other ECB policy aspects remain unchanged.
What it means for you
Banks acting as AD Category-I must now verify and certify the leverage ratio of IFCs before submitting ECB applications under the approval route. This increases due diligence burden on banks but ensures better risk assessment for higher ECB exposures. IFCs seeking ECBs above 50% of owned funds will face additional scrutiny from their designated bank.
What you must do
Update internal processes to include leverage ratio certification for IFC ECB proposals under approval route.
Train staff on calculating and certifying outside liabilities/owned funds ratio for IFCs.
Ensure all IFC ECB applications above 50% of owned funds include certified leverage ratio before forwarding to RBI.
Review existing IFC relationships to identify any pending or future approval-route ECB requests.
Who it affects
AD Category-I banks handling ECB proposals for IFCs, Infrastructure Finance Companies (IFCs) seeking ECBs above 50% of owned funds, RBI's ECB approval processing team
❓ Common questions
What is the leverage ratio that AD banks must certify?
The leverage ratio is defined as outside liabilities divided by owned funds. AD Category-I banks must certify this ratio for IFCs when forwarding ECB proposals under the approval route.
Does this circular change the automatic route limit for IFC ECBs?
No, the automatic route limit remains unchanged at 50% of owned funds. The new certification requirement applies only to ECB proposals under the approval route, i.e., above 50% of owned funds.
Are there any other changes to ECB policy for IFCs?
No, all other aspects such as eligible borrower, recognised lender, maturity, all-in-cost, end-use, prepayment, refinancing, and reporting remain unchanged as per existing guidelines.
📜 Read the original circular — full text as issued by RBI
RBI/2011-12/367
A.P. (DIR Series) Circular No.70
January 25, 2012
To
All Authorised Dealer Category- I Banks
Madam / Sir,
External Commercial Borrowings (ECB) Policy – Infrastructure
Finance Companies (IFCs)
Attention of Authorized Dealer Category-I (AD Category-I) banks is invited to A.P. (DIR Series) Circular No. 5 dated August 1, 2005 , amended from time to time and A. P. (DIR Series) Circular No. 51 dated May 11, 2010 relating to External Commercial Borrowings (ECBs). As per the extant guidelines, Non-Banking Finance Companies (NBFCs) categorized as Infrastructure Finance Companies (IFCs) by the Reserve Bank and complying with the norms prescribed in the DNBS Circular DNBS.PD.CC.No.168/03.02.089/2009-10 dated February 12, 2010 are permitted to avail of ECBs, including the outstanding ECBs, up to 50 per cent of their owned funds under the automatic route. ECBs by IFCs above 50 per cent of their owned funds are being considered under the approval route. The permitted end-use should be for on-lending to the infrastructure sector, as defined under the extant ECB policy. IFCs should also hedge their currency risk in full.
2. It has now been decided that the designated AD Category – I banks should certify the leverage ratio (i.e. outside liabilities/owned funds) of IFCs desirous of availing ECBs under the approval route while forwarding such proposals to the Reserve Bank of India.
3. All other aspects of the ECB policy, such as eligible borrower, recognised lender, maximum permissible limit under the automatic route, average maturity , all-in-cost, end-use, prepayment, refinancing of existing ECB and reporting arrangements shall remain unchanged.
4. AD Category - I banks may bring the contents of this circular to the notice of their constituents and customers.
5. 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 are without prejudice to permissions / approvals, if any, required under any other law.
Yours faithfully,
(Rashmi Fauzdar)
Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2011-12/367 · issued 25 Jan 2012. The plain-English explanation above is BankPulse’s own independent summary.
Ensure all IFC ECB applications above 50% of owned funds include certified leverage ratio before forwarding to RBI.
📜 Compliance
Update internal processes to include leverage ratio certification for IFC ECB proposals under approval route.
Train staff on calculating and certifying outside liabilities/owned funds ratio for IFCs.
Review existing IFC relationships to identify any pending or future approval-route ECB requests.
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 (AD Category-I banks handling ECB proposals for IFCs, Infrastructure Finance Companies (IFCs) seeking ECBs above 50% of owned funds, RBI's ECB approval processing team), your first concrete step on “ECB Policy: IFC Leverage Ratio Certification by AD Banks” is: “Update internal processes to include leverage ratio certification for IFC ECB proposals under approval route.” (RBI issued this 25 Jan 2012).
Circular: RBI/2011-12/367 -- ECB Policy: IFC Leverage Ratio Certification by AD Banks
Issued: 25 Jan 2012
Action required: Update internal processes to include leverage ratio certification for IFC ECB proposals under approval route.
Action required: Train staff on calculating and certifying outside liabilities/owned funds ratio for IFCs.
Action required: Ensure all IFC ECB applications above 50% of owned funds include certified leverage ratio before forwarding to RBI.
Action required: Review existing IFC relationships to identify any pending or future approval-route ECB requests.
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 03 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=6964&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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