What changed
Previously, eligible borrowers could refinance or reschedule an existing ECB at a higher all-in-cost under the approval route, as long as the enhanced cost stayed within prescribed ceilings. From October 1, 2013, RBI has discontinued this facility entirely. Refinancing at a lower all-in-cost continues to be allowed under the automatic or approval route, subject to maintaining or extending the original maturity.
What it means for you
Banks can no longer facilitate ECB refinancing deals where the new loan carries a higher interest rate than the original. This tightens the refinancing window, pushing borrowers to seek cheaper funding or extend maturities. Lenders must ensure any refinancing proposal now strictly adheres to the lower all-in-cost condition, or else it will require prior RBI approval and likely be rejected.
What you must do
- Update internal ECB processing guidelines to reject any refinancing or rescheduling proposal with higher all-in-cost from October 1, 2013.
- Advise corporate clients that only refinancing at lower all-in-cost is permitted, and that original maturity must be maintained or extended.
- Review existing ECB refinancing applications in pipeline to ensure compliance with the new restriction before October 1 deadline.
- Train AD Category-I bank staff on the revised ECB refinancing rules to avoid processing non-compliant requests.
Who it affects
All Authorised Dealer Category-I banks, Corporate borrowers with existing ECB facilities seeking refinancing, Treasury and forex departments handling ECB transactions
Can we still refinance an ECB if the new loan has a lower interest rate?
Yes, refinancing at a lower all-in-cost remains permitted under the automatic route or approval route, provided the original maturity is maintained or extended.
What happens if a borrower wants to reschedule an ECB at a higher cost after October 1?
Such requests will not be allowed. The facility to raise ECB at higher all-in-cost for refinancing or rescheduling has been discontinued with effect from October 1, 2013.
Does this circular affect any other aspects of ECB policy?
No, all other aspects of ECB policy remain unchanged. Only the specific provision allowing higher-cost refinancing/rescheduling has been withdrawn.