Changing landscape of Corporate Borrowings in India

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Corporate sector either through debts or equity arranges for its finance. The transaction of these debts is managed by the external commercial borrowings. This deals with all the transactions involving the transfer of funds or debts borrowed from a foreign corporate sector to Indian corporates. Indian Corporates show interest in debts provided by foreign corporates because of the low-interest rate and regulatory formalities. In December 2018, RBI informed the Foreign Exchange Management regarding the Liberalization of the ECB rules. However, these amendments did not mention the procedure for performing an ECB transaction as a result of which RBI was required to frame all those provisions in consultation with the government of India. In January 2019, RBI released these provisions, the procedure to perform an ECB transaction and all the regulatory compliances. 

Before getting into the changes let us understand a few terms: 


This is used to help Indian borrowers raise money from foreign lenders. This is to provide help in the expansion of present corporate and for investments of new ones. ECB manages commercial loans which include: bank loans, bonds, buyers credit, suppliers credit. Availemt of ECB can happen either through automatic route or approved route. The Government of India has listed a few norms for a company which upon fulfilment,  can raise money without the government’s approval. However, for a few sectors, the borrowers are required to take either the government’s or RBI’s approval. 1


It is the abbreviation for Financial Action Task Force formed in the year 1989. It was a G7 initiative. This was formed to control the money laundering acts by forming policies.


It is the abbreviation of the International organization of securities commission. This organisation manages the world’s securities and finances.


FCY is the abbreviation of foreign currency.


All-in-cost is the total expense procured in a financial transaction.

AD- 1 category bank:

This is one of the three authorized bank categories. These were authorized by the RBI to deal in foreign currency. This was done through the foreign exchange management act(FEMA). 

What are the changes brought by the Master Circular in the ECB regime?

Eligible Borrowers:

According to this circular any corporate or individual who has the eligibility to raise foreign direct investment can be counted as eligible Borrowers. 

Recognised Lenders:

Primarily, the criteria for being an eligible lender is that he/she should be a member of FATF or IOSCO. However, in a few cases the following can also be considered as recognised Lenders:

  1. Has a multilateral or financial institution where India is a member country.
  2. Subsidiary branches or foreign branches of Indian banks:
  1. Can raise FCY
  2. They can participate as underwriters, arrangers, market lenders for INR.

It can be noticed that the amendments have liberalized the definition of the recognised lender by accepting any person with FATF or IOSCO complaint as one. However, these have a few exceptions as mentioned above. 

ECB forms:

According to the amended rules, ECB is of two forms: foreign currency denominated ECB and Indian Currency denominated ECB.


This is the abbreviation of Minimum average maturity period. The changes brought are as follows:

  1. Across the board, uniform MAMP is of 3 years.
  2. For the manufacturing sector, there is a retention of earlier MAMP of 1 yr.
  3. For general corporate purpose or repayment of a loan, MAMP will be for 5 yrs.

Further, the amended ECB regime states that the put or call option can be exercised only after the MAMP.


The previous definition has undergone some additions. Which include:

  1. According to the new guidelines in case of FCCBS, issue related expenses should not exceed 4% of the original issue amount.
  2. In the case of private placements, it should not exceed 2% of the issued amount.

Hedging provisions:

Hedging provisions for the infrastructure department have been reduced from 100% to 70%. 

In case of prepayment of ECB power held by the AD-Category-1 bank:

The amended rules are silent regarding the power held by the AD-1 CATEGORY bank in case of ECB prepayments. 

Conversion of equity into equity in phases:

Master circular predicts additional reporting requirements along with the FC-GPR form. 


Erstwhile regime provided limits for borrowings per year for every sector which has been modified and made into a single limit for all the sectors through the new regime.


Leverage set out by the new rules provided by the RBI States that debt-equity ratio cannot exceed 7:1 for the foreign currency denominated ECB raised from direct foreign equity holders.

This can be seen as a step towards rationalization.

Regularisation in case of non-reporting:

According to both the frameworks, reporting of ECB should happen on a monthly basis. To regularise the delay in this process, RBI has stated in its amendment late fees for delay in reporting.

SOP for untraceable Entity. 

According to the new guidelines, a borrower is considered to be an untraceable entity if the entity/ auditor/direct or the promoter do not reply to the emails, letters or the calls post a minimum of 6 remainders in a period of 2 or more quarters. Further, the entity should be found inoperative at the official address and the entity has failed to submit the statutory auditor’s cert for the past 2 yrs.2


Money market regulatory in order to bring in ease in ECB had introduced some new changes in the ECB regime. This was done to liberalize and rationalize the process. The primary and efficient change brought was the change in the tiring and never-ending process of identification and tracking. Debts contribute to economic growth. By Liberalizing and rationalizing these provisions, India has provided a better platform for economic growth. The definition and scope of recognised lenders and borrowers has widened. ECB has been categorised into two forms. The change in debt-equity ratio as mentioned above can be seen as a step towards rationalization. Further standard protocols are provided to name a borrower an untraceable entity.


  1. Target costing, EFINANCEMANAGEMENT, ( June 11, 2020),
  2. Vaish Associates Advocates, Changing landscape of external borrowings in India, MONDAQ, ( July 30, 2019),

Anusha Nookala

Student, Symbiosis Law School Hyderabad

Anusha Nookala is a student at Symbiosis Law School, Hyderabad currently pursuing BBA LLB. She is a corporate law enthusiast.  She is an effective and attentive speaker and listener, highly organized and detail-oriented individual. For any Clarifications, feedback, and suggestion, you can reach her at

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