>Monkbot at 15:53, 8 December 2020

2020-12-08T15:53:42Z

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{{Short description|Foreign currency loans from non-resident Indians to Indians}}'''External commercial borrowing''' (ECBs) are [[loan]]s in India made by non-resident lenders in foreign currency to Indian borrowers. They are used widely in India to facilitate access to foreign money by Indian corporations and PSUs ([[public sector]] undertakings). ECBs include [[commercial bank]] loans, buyers' credit, suppliers' credit, securitised instruments such as [[Floating exchange rate|floating rate]] notes and fixed rate bonds etc., credit from official [[Export Credit Agencies|export credit agencies]] and commercial borrowings from the private sector window of multilateral [[financial institution|financial Institutions]] such as [[International Finance Corporation]] (Washington), ADB, AFIC, CDC, etc. ECBs cannot be used for investment in [[stock market]] or speculation in [[real estate]]. The DEA (Department of Economic Affairs), Ministry of Finance, [[Government of India]] along with [[Reserve Bank of India]], monitors and regulates ECB guidelines and policies.

Most of these loans are provided by foreign [[commercial bank]]s and other institutions. During the 2012, contribution of ECBs was between 20 and 35 percent of the total capital flows into India. Large number of Indian corporate and PSUs have used the ECBs as sources of investment.<ref>{{cite web |url=http://www.indianeconomy.net/splclassroom/236/what-is-external-#sthash.3t6DZBEi.dpuf |title=What is External Commercial Borrowings (ECBs)? |date=July 8, 2016 |publisher=indianeconomy.net }}</ref>

For infrastructure and greenfield projects, funding up to 50% (through ECB) is allowed. According to a report in ''[[The Hindu]]'' in January 2013, the Reserve Bank of India raised the ECB limit "for non-banking finance companies (NBFCs) classified as infrastructure finance companies (IFCs) ... from 50 per cent to 75 per cent of owned funds, including outstanding ECBs".<ref>{{Cite news |url = http://www.thehindubusinessline.com/industry-and-economy/banking/ecb-limit-raised-for-infrastructure-nbfcs/article4283635.ece |title = ECB limit raised for infrastructure NBFCs |date = January 7, 2013|newspaper = The Hindu|archive-url = https://web.archive.org/web/20130612062031/http://www.thehindubusinessline.com/industry-and-economy/banking/ecb-limit-raised-for-infrastructure-nbfcs/article4283635.ece|archive-date = 2013-06-12|access-date = February 12, 2017}}</ref> In telecom sector too, up to 50% funding through ECBs is allowed. Recently Government of India<ref>{{cite news |url=http://www.thehindubusinessline.com/industry-and-economy/article3742241.ece?homepage=true&ref=wl_home |title=Overseas borrowing of companies flat in first quarter |date=August 8, 2012}}</ref> allowed borrowings in Chinese currency yuan. Earlier, corporate sectors could mobilize $750 million via automatic route, whereas service sectors and NGO's for microfinance could mobilize $200 million and $10 million respectively.<ref>{{cite web |url=http://www.rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=8101#S2 |title=Master Circular on External Commercial Borrowings and Trade Credits |date=July 1, 2013 |publisher=[[Reserve Bank of India]] }}</ref> More recently, RBI issued a guideline stating that all eligible borrowers can raise ECB up to USD 750 million or equivalent per financial year under the automatic route.<ref>{{cite web |url=https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11510#22 |title=Master Direction - External Commercial Borrowings, Trade Credits and Structured Obligations |date=August 8, 2019 |publisher=[[Reserve Bank of India]] }}</ref>

Borrowers can use 25 per cent of the ECB to repay rupee debt and the remaining 75 per cent should be used for new projects. A borrower can not refinance its entire existing rupee loan through ECB. The money raised through ECB is cheaper given near-zero interest rates in the US and Europe, Indian companies can repay part of their existing expensive loans from that.

== References ==
{{reflist}}

[[Category:Finance in India]]
[[Category:Capital markets of India]]
[[Category:Debt]]

External commercial borrowing - Revision history

>Monkbot at 15:53, 8 December 2020