External Commercial Borrowings (ECB) Policy – Review of all-in-cost ceiling – Sept. 2013
No.CLE -HO/Pol/RBI /13-14
Nov. 7, 2013
Members of the Council
Sub : External Commercial Borrowings (ECB) Policy – Review of all-in-cost ceiling
As members are aware, Trade Credits’ refer to credits extended for imports directly by the overseas supplier, bank and financial institution for maturity of less than three years. Depending on the source of finance, such trade credits include suppliers’ credit or buyers’ credit. Suppliers’ credit relates to credit for imports into India extended by the overseas supplier, while buyers’ credit refers to loans for payment of imports into India arranged by the importer from a bank or financial institution outside India for maturity of less than three years. Buyers’ credit and suppliers’ credit for three years and above come under the category of External Commercial Borrowings (ECB) which is governed by ECB guidelines.
Considering the developments in the global financial markets and the fact that borrowers were experiencing difficulties in raising ECBs within the existing all-in-cost ceiling, RBI enhanced the all-in-cost ceiling for ECBs with average maturity of three and up to five years was enhanced to 6 months Libor + 350 bps with effect from November 23, 2011, subject to review on March 31, 2012.
Vide its circular No.99 dt.30th March 2012, RBI decided to continue with the enhanced all-in-cost ceiling for a further period of six months in respect of ECBs as under:
|Average Maturity Period||All-in-cost over 6 month LIBOR*|
|Three years and up to five years||350 bps|
|More than five years||500 bps|
|* for the respective currency of borrowing or applicable benchmark|
The RBI subsequently issued a circular No. 60 dated Dec. 14, 2012 stating that the all-in-cost ceiling as specified in A.P. (DIR Series) Circular No. 99 dated March 30, 2012 will continue to be applicable till March 31, 2013 and subject to review thereafter.
The RBI then issued a Circular A.P. (DIR Series) No.11 dated July 11, 2013 stating that the all-in-cost ceiling as specified in A.P. (DIR Series) Circular No. 99 dated March 30, 2012 will continue to be applicable till September 30, 2013 and is subject to review thereafter. The RBI has now issued a Circular A.P. (DIR Series) Circular No.58 dated Sept. 30, 2013 stating that the all-in-cost ceiling as specified in A.P. (DIR Series) Circular No. 99 dated March 30, 2012 will continue to be applicable till March 31, 2014.
The RBI has also issued a Circular No.59 dated Sept. 30, 2013 (copy enclosed) stating the following.
As per the extant guidelines, the eligible borrowers desirous of refinancing an existing ECB can raise fresh ECB at a higher all-in-cost / reschedule an existing ECB at a higher all-in-cost under the approval route subject to the condition that the enhanced all-in-cost does not exceed the all-in-cost ceiling prescribed as per extant guidelines.
On a review, it has been decided to discontinue this facility allowing eligible borrowers to raise ECB at a higher all-in-cost to refinance / reschedule an existing ECB with effect from October 01, 2013.
The scheme of refinance of existing ECB by raising fresh ECB at lower all-in-cost, subject to the condition that the outstanding maturity of the original ECB is either maintained or extended, will continue as hitherto under the automatic route and approval route as the case may be.
Members may kindly take note of the above.
R Ramesh Kumar, IAS
Council for Leather Exports