What changed
Previously, ECB could not be used for general corporate purpose. Now, under the approval route, eligible borrowers can raise ECB from their foreign equity holder for general corporate purposes, provided the lender holds at least 25% paid-up equity directly and the loan has a minimum average maturity of 7 years. Repayment of principal starts only after completion of the minimum average maturity of 7 years, and no prepayment is allowed before maturity.
What it means for you
Banks and lenders can now facilitate ECB for general corporate purposes from foreign equity holders, but only under the approval route with strict conditions. This opens a new funding avenue for eligible borrowers, but the 7-year lock-in and no-prepayment clause increase risk and reduce flexibility. Banks must ensure compliance with the 25% equity holding and end-use restrictions.
What you must do
- Verify that the borrower's foreign equity holder directly holds at least 25% paid-up equity before processing ECB applications.
- Ensure ECB proceeds are not used for any purpose prohibited under extant ECB guidelines, including on-lending to group companies or step-down subsidiaries.
- Confirm that the ECB agreement mandates repayment of principal commencement only after completion of the minimum average maturity of 7 years and prohibits prepayment before maturity.
- Advise customers to apply under the approval route for such ECBs, as automatic route is not available for this relaxation.
- Update internal ECB policy and training materials to reflect this new approval-route facility for general corporate purpose.
Who it affects
Authorised Dealer Category-I banks, Eligible borrowers seeking ECB for general corporate purpose, Foreign equity holders of Indian companies
Can any borrower avail ECB for general corporate purpose under this circular?
No, only eligible borrowers who have a foreign equity holder directly holding at least 25% paid-up equity can avail, and only under the approval route.
What is the minimum maturity and repayment condition for such ECBs?
The minimum average maturity is 7 years. Repayment of principal can start only after completion of this minimum average maturity period, and no prepayment is allowed before maturity.
Can the ECB proceeds be on-lent to group companies or step-down subsidiaries?
No, such ECBs cannot be used for any purpose not permitted under extant ECB guidelines, including on-lending to group companies or step-down subsidiaries in India.