What changed
RBI allowed Holding Companies and Core Investment Companies (CICs) under its regulatory framework to raise ECB for project use in infrastructure SPVs. The ECB can be used for fresh capital expenditure (automatic/approval route) or refinancing existing rupee loans (approval route). CICs must ensure outside liabilities including ECB do not exceed 2.5 times adjusted net worth, and those with asset size below Rs 100 crore must fully hedge the ECB.
What it means for you
Banks can facilitate ECB for holding companies/CICs funding infrastructure SPVs, expanding the funding pool for infrastructure. Lenders must ensure SPVs are exclusively for infrastructure projects and that ECB proceeds are kept in a separate escrow account with strict end-use monitoring. For CICs, banks need to verify leverage ratios (outside liabilities including ECB not more than 2.5 times adjusted net worth) and hedging requirements (full hedging for CICs with asset size below Rs 100 crore) before processing.
What you must do
- Verify that the SPV is exclusively for an infrastructure project as per ECB guidelines.
- Ensure ECB proceeds are used only for fresh capex (automatic/approval route) or refinancing rupee loans (approval route) within prescribed limits.
- Monitor that ECB proceeds are kept in a separate escrow account and used only for permissible end-uses.
- For CICs, confirm outside liabilities including ECB do not exceed 2.5 times adjusted net worth; for CICs with asset size below Rs 100 crore, ensure full hedging.
- Advise customers that ECB can be raised up to 3 years after SPV's commercial operations date.
Who it affects
Authorised Dealer Category I Banks, Holding Companies, Core Investment Companies (CICs), Infrastructure SPVs
Can ECB proceeds be used for any purpose other than fresh capex or refinancing?
No, ECB proceeds can only be used for fresh capital expenditure (automatic/approval route) or refinancing existing rupee loans (under approval route) for capex as per extant norms.
What is the leverage limit for CICs raising ECB?
CICs must ensure their outside liabilities including ECB do not exceed 2.5 times their adjusted net worth as per the last audited balance sheet.
Is hedging mandatory for all CICs raising ECB?
No, only CICs with asset size below Rs 100 crore must raise ECB on a fully hedged basis.