What changed
Previously, replacing bridge finance with a long-term ECB required prior RBI approval. Now, if the bridge finance is in the form of buyers'/suppliers' credit, refinancing via ECB can be done under the automatic route, provided the credit is refinanced before its maximum trade credit period and other conditions are met. Borrowers still need RBI approval only for the initial bridge finance.
What it means for you
This eases the refinancing process for infrastructure firms, reducing approval delays and compliance burden. Banks must verify import documentation and ensure end-use monitoring, but cannot issue guarantees for the ECB. The change encourages smoother capital goods imports while maintaining ECB norms.
What you must do
- Verify Bill of Entry to evidence import of capital goods before allowing ECB refinancing under automatic route.
- Ensure the buyers'/suppliers' credit being refinanced complies with trade credit guidelines and is refinanced before its maximum permissible period.
- Monitor end-use of funds and confirm the ECB meets all other norms (eligible borrower, cost, maturity, etc.).
- Do not provide any form of guarantee for the ECB; inform customers of the new automatic route option.
Who it affects
AD Category-I banks handling ECB transactions, Infrastructure companies importing capital goods via bridge finance, Borrowers seeking ECB refinancing for buyers'/suppliers' credit
Can we refinance any bridge finance under automatic route now?
Only if the bridge finance is in the nature of buyers'/suppliers' credit for capital goods imports. It must be refinanced before the trade credit's maximum permissible period, and you must have evidence of import via Bill of Entry.
Do we still need RBI approval for bridge finance itself?
Yes, the initial bridge finance still requires RBI approval under the approval route. Only the subsequent refinancing with a long-term ECB can be done under automatic route if conditions are met.
Are banks allowed to issue guarantees for these ECBs?
No. Banks in India are not permitted to provide any form of guarantee for the ECB, as per the circular.