What changed
Previously, ECB for working capital was not allowed for any sector. Now, for civil aviation, working capital is a permissible end-use under the approval route, subject to conditions including a sector cap of USD 1 billion and per-airline cap of USD 300 million. The window is open for 12 months from the circular date.
What it means for you
Banks can now facilitate ECB for airlines' working capital needs, including refinancing of existing rupee working capital loans. This provides airlines access to cheaper foreign funds but requires strict compliance with end-use, maturity, and repayment conditions. Banks must ensure repayment is from the airline's foreign exchange earnings only.
What you must do
- Verify that the airline holds a scheduled operator permit from DGCA and is registered under Companies Act, 1956.
- Ensure ECB applications include a CA certificate confirming working capital requirement and projected forex cash flows.
- Confirm that the total ECB availed by the airline does not exceed USD 300 million and sector-wide cap of USD 1 billion is not breached.
- Monitor that ECB proceeds are used only for working capital or refinancing of rupee working capital loans, and not rolled over.
- Ensure repayment is made solely from the airline's foreign exchange earnings, not from Indian forex markets.
Who it affects
Authorised Dealer Category-I banks, Scheduled airlines in India, Domestic lenders with outstanding rupee working capital loans to airlines
Can an airline use ECB to refinance its existing rupee working capital loan?
Yes, the circular explicitly allows ECB for refinancing outstanding working capital rupee loans, provided the airline submits a certification from the domestic lender confirming the outstanding loan amount.
What is the maximum amount an airline can raise under this facility?
The overall sector cap is USD 1 billion, and each airline can raise up to USD 300 million. This limit covers both fresh working capital and refinancing of existing rupee loans.
Is there any restriction on repayment of this ECB?
Yes, the airline must repay the ECB only from its own foreign exchange earnings. Banks must ensure that foreign exchange for repayment is not sourced from Indian markets.