External Commercial Borrowings (ECB) are debts taken on by a qualified entity in India for purely commercial purposes from any recognized entity outside India. These borrowings are required to adhere to the RBI’s rules and regulations. The RBI regulations regulating ECBs are outlined in the Master Direction – External Commercial Borrowings, Trade Credits, and Structured Commitments (Master Direction) and the Foreign Exchange Management Act, 1999 (FEMA).

ECBs have proven to be valuable tools for Indian businesses and organisations seeking to raise funds from outside the country, especially for attracting new investments. Foreign Currency Convertible Bonds (FCCBs) and Foreign Currency Exchangeable Bonds (FCEBs) are two mechanisms that are identical to ECBs (FCEBs). While the primary motivation for the issuance of FCCBs is to collect money, ECBs have a wider scope of application; commercial loans, such as securitized securities, bank loans, suppliers’ credit, buyers’ credit, and bonds, come under the latter’s umbrella. The aforementioned instruments have a minimum maturity span of three years on average.

Advantages of External Commercial Borrowings

  • ECBs allow large amounts of money to be borrowed;
  • The funds are available for a long period of time; and
  • Interest rates are lower than domestic funds.
  • ECBs are denominated in international currencies. As a result, they allow the company to have foreign currency in order to meet the import of machinery and other products.
  • Companies may receive ECBs from a number of globally recognised outlets, including banks, export credit agencies, and foreign capital markets.

Disadvantages of External Commercial Borrowings

  • The availability of funds at a lower cost may lead to a lax mind set on the part of the organisation, resulting in unnecessary borrowing.
  • Higher debt on the balance sheet is generally regarded negatively by rating agencies, resulting in a potential downgrade by rating agencies, which may ultimately result in an increase in the cost of debt.

Since the loan is in a foreign currency, the repayment of the principal and interest must also be made in that currency, exposing the business to exchange rate risk.

Routes of External Commercial Borrowings

Access to ECBs is through two routes:

  • Automatic Route
  • Approval Route


Prospective borrowers do not need RBI approval to collect ECB using the automatic route; instead, their cases are checked by Approved Dealer Category-I (AD Category-I) banks. The Automated Route includes the following forms of proposals for ECBs.

  • Eligible borrowers
    • Corporates, including those in the hotel, hospital, software, and infrastructure finance companies (IFCs), are entitled to collect ECB, with the exception of financial intermediaries such as banks, financial institutions (FIs), Housing Finance Companies (HFCs), and Non-Banking Financial Companies (NBFCs).
    • Special Economic Zone (SEZ) units are authorised to collect ECB for their own needs. They cannot, however, move or on-lend ECB funds to sister companies or any other unit in the Domestic Tariff Area. The Ministry of Finance also regulates ECB through units in SEZ.
    • ECB is open to non-government organisations that participate in microfinance activities. Such NGOs must have a satisfactory borrowing relationship with a scheduled commercial bank authorised to deal in foreign exchange in India for at least three years, and have a satisfactory borrowing relationship with a scheduled commercial bank authorised to deal in foreign exchange in India for at least three years.
  • Recognised Lenders
    • Borrowers can raise ECB from internationally recognised sources such as:
      • international banks,
      • international capital markets,
      • multilateral financial institutions (such as IFC, ADB, CDC etc.,),
      • export credit agencies,
      • suppliers of equipment,
      • foreign collaborators and;
      • foreign equity holders (other than erstwhile OCBs).
    • ECB can be issued to Non-Governmental Organizations (NGOs) engaged in microfinance activities by overseas organisations and individuals that comply with the following safeguards.

Amount and Maturity

  • Within a financial year, a company can collect a limit of USD 500 million or its equivalent in ECB.
  • ECB up to USD 20 million or equivalent in a fiscal year with a three-year minimum average maturity
  • ECB with a minimum average maturity of five years, over USD 20 million and up to USD 500 million or equivalent.
  • During a fiscal year, NGOs engaged in microfinance activities will collect up to USD 5 million in ECB. The appointed AD bank must ensure that the borrower’s forex exposure is hedged at the time of drawdown.
  • ECB may have a call/put option up to USD 20 million if the minimum average maturity of 3 years is reached before exercising the call/put option.


In this situation, prospective borrowers must apply their requests for review to the Reserve Bank via their AD Banks. The Approval Route includes the following forms of proposals for the ECB.

Eligible Borrowers

  • IDFC, IL&FS, Power Finance Corporation, Power Trading Corporation, IRCON, and EXIM Bank are among the financial institutions that specialise in infrastructure or export finance.
  • Banks and financial institutions that participated in the government-approved textile or steel sector restructuring package are also allowed to the extent of their investment in the package, subject to a prudential assessment by the Reserve Bank. Any ECB that has already been used for this reason will be removed from their entitlement.
  • Non-Banking Financial Companies (NBFCs) from multilateral financial institutions, reputable regional financial institutions, official export credit agencies, and foreign banks are using ECBs with a minimum average maturity of 5 years to fund the import of infrastructure equipment for leasing to infrastructure projects.
  • Foreign Currency Convertible Bonds (FCCB) issued by housing finance companies that meet the following minimum requirements: (i) the financial intermediary’s net worth over the previous three years must be at least Rs. 500 crore; (ii) the FCCB must be classified on the BSE or NSE; (iii) the FCCB must be at least USD 100 million; and (iv) the borrower must apply the intent / plan of use of funds.
  • Special Purpose Vehicles, or any other entity notified by the Reserve Bank, will be regarded as Financial Institutions, and ECB by such entities will be considered under the Approval Path.
  • Multi-State Co-operative Societies that are active in manufacturing and meet the following requirements I The Co-operative Society is financially solvent; ii) The Co-operative Society submits an audited balance sheet that is up to date.

Recognised Lenders

  • Borrowers can raise ECB from internationally recognised sources such as:
    • international banks,
    •  international capital markets,
    • multilateral financial institutions (such as IFC, ADB, CDC etc.,),
    • export credit agencies,
    • suppliers’ of equipment,
    • foreign collaborators and;
    • Foreign equity holders (other than erstwhile OCBs).

Amount and Maturity

During a financial year, companies can use the approval route to receive an additional USD 250 million in ECB with an average maturity of more than 10 years, in addition to the current cap of USD 500 million under the automatic route. Other ECB specifications, such as end-use, all-in-cost ceiling, recognised lender, and so on, must be met. Prepayment and call/put options, on the other hand, will be prohibited for such ECBs for a period of up to ten years.

End-use Restrictions

The RBI has gradually eased the strict restrictions on the end-use of ECBs generated, and as of July 30, 2019, ECB proceeds can now be used for general corporate purposes, working capital needs, repayment of INR loans, and other on-lending purposes, subject to the limit and leverage requirements detailed in the Master Path.  The new permissibility of ECB use for working capital and general corporate purposes with a minimum average maturity period (MAMP) of 10 years is the most notable improvement in terms of policy relaxation. Furthermore, the ECB proceeds can be used to repay rupee loans taken out in the domestic market with a 7-year MAMP.

The Master Direction, in particular, imposes limits on how these funds are used. The funds lent by External Commercial Borrowing can be used to extend enterprises, but they can’t be used for onward lending, repaying existing loans, or investing in real estate.

Crystallisation of External Commercial Borrowings

AD banks may apply to the Chief General Manager-in-Charge, Foreign Exchange Department, External Commercial Borrowing Division of RBI in Mumbai to crystallise their foreign exchange liability arising from guarantees given for ECB raised by Indian companies in Rupees.

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