RBI relaxes ECB norms

The Reserve Bank of India has introduced changes in external commercial borrowings (ECB) norms under which authorised money changing banks have been allowed to create a charge on securities.

Present situation:

  • At present, the choice of security to be provided to the overseas lender or the supplier for securing ECB is left to the borrower.

Why this decision:

It was taken with a view to liberalising, expanding the options of securities and consolidating various provisions related to creation of charge over securities for ECB at one place.

Details:

  • It has been decided that Authorised Dealer Category-I banks may allow creation of charge on immovable assets, movable assets, financial securities and issue of corporate and/or personal guarantees in favour of overseas lender/security trustee, to secure the ECB to be raised/raised by the borrower. However, the new rules are subject to certain conditions.
  • The underlying ECB must be in compliance with extant ECB guidelines, there should be a security clause in the loan agreement, requiring the ECB borrower to create charge, and a no objection certificate will have to be obtained from an existing domestic lender.
  • Additionally, Authorised Dealer Category-I bank may permit creation of charge on immovable assets, movable assets, financial securities and issue of corporate and/or personal guarantees.
  • Authorised Category banks are Authorised Money Changers (AMCs) which are entities, authorised by the Reserve Bank under the Foreign Exchange Management Act, 1999. An AMC is a Full Fledged Money Changer (FFMC) authorised by the Reserve Bank to deal in foreign exchange for specified purposes.

Sources: The Hindu, RBI.

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