external commercial ecb

8/9/2019 External Commercial ECB

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External Commercial

Borrowing(ECB)

Presented By:-

Group No. 2

Roll No.- 6-10


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What is ECB?

Commercial bank loans

Buyers credit

Suppliers credit

Securitized instruments

Credit

Investments


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Benefits of ECBs to borrowers

No dilution in ownership

Considerably large funds can be raised as per

requirements of borrower

Usually only a fixed rate of interest is to be paid

Easy Availability of funds because ECB is moreappealing to Investors


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Benefits of ECBs to Economy

Nourish 2 sectors:-

Infrastructure

SME

Easy to acquire foreign loans forSMEs.

Low cost of funds in the global market


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Benefits of ECBs to investors

ECB is for specific period, which can be as short as

three years.

Fixed Return, usually the rates of interest are fixed.

The interest and the borrowed amount are repatriable.

No owners risk as in case of Equity Investment.


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Routes of ECBs

ECBs can be accessed under two routes-

(i) Automatic Route and

(ii) Approval Route.


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Eligible Borrowers


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Recognized Lenders


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Amount and Maturity


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All-in-Cost Ceillings


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Permitted End Users


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End Users Not Permitted


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Security

Automatic Route choice of security to be provided

to the lender/supplier is left to the

borrower.

Creation of charge over the

immovable assets and financial

securities, such as shares, in

favour of the overseas lender are

subject to Regulation 8 of

Notification No. FEMA 21/RB-

2000 and Regulation 3 ofNotification No. FEMA 20/RB-

2000 both dated 3rd May 2000.

Approval Route Creation of charge over the

immovable assets and financial

securities, such as shares, in

favour of the overseas lender aresubject to Regulation 8 of


2000 and Regulation 3 of


2000 both dated 3rd May 2000.

Powers have been delegated toAuthorised Dealer Category I

banks to issue necessary NOCs

under FEMA as detailed in para I

(A) (viii) ibid.


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Guarantees

Issuance of guarantee, standby letter of credit, letter of undertaking

or letter of comfort by banks, financial institutions and NBFCs relating

to ECBs in favour of overseas lender on behalf of their constituents for

their borrowings in foreign exchange is normally not permitted.

Applications in the case ofSME will be considered on merit subject

to prudential norms.

Issuance of guarantees etc., in respect of ECBs by textile companiesfor capacity expansion and modernization are considered by RBI

under the approval route subject to prudential norms.


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Trends of ECBs in India


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Contd..


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Seasonal Trend Analysis of ECB

during Recession


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Conclusion

Important source of financing for the Indian companies.

Lower interest rates outside provide an opportunity topick up funds at lower costs.

Increase in External Commercial Borrowings by

corporate increases Indias external debt.

Increase in ECB brings the risk of depreciation in rupee


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Thank You

external commercial ecb

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