The Reserve Bank of India (RBI) has issued various circulars since releasing the Master Circular on July 01, 2011. In order to make it easy for the investor it has come up with a compilation of these vide Master Circular dated January 20, 2012. Initially, it had started with Master Circular on ECB & Trade Credits and Compounding of Contraventions under FEMA, 1999 and we expect more to come.

The key amendments which have been taken place during the last six months are stated below:

Redemption of Foreign Currency Convertible Bonds:





Ref: A.P. (DIR Series) Circular No. 01 dated July 04, 2011

In order to meet the redemption obligation of FCCBs by Indian Companies, the Reserve Bank of India (RBI) allowed refinancing of FCCBs by raising fresh ECB/ FCCB under automatic route subject to compliance of prescribed norms.

External Commercial Borrowings for the Infrastructure Sector– Liberalization





Ref: A.P. (DIR Series) Circular No. 25 dated September 23, 2011

Vide this Circular, RBI allowed raising of ECB for repayment of existing rupee loans for carrying out infrastructure projects under approval route, subject to the conditions prescribed therein.

External Commercial Borrowings – Bridge Finance for Infrastructure Sector





Ref: A.P. (DIR Series) Circular No. 26 dated September 23, 2011

Companies, in infrastructure sector, were allowed to raise ECB to import the capital goods by availing of short term credit in the nature of bridge finance under the approval route subject to the conditions prescribed therein.

External Commercial Borrowings – Rationalization and Liberalization





Ref: A.P. (DIR Series) Circular No. 27 dated September 23, 2011

Limit of ECB under automatic route was raised from USD 500 million to USD 750 million for real sector, industrial sector, infrastructure sector and from USD 100 million to USD 200 million for specified service sectors viz hotel, hospital and software. Further ECB was allowed to be raised in INR. ECB for Interest during construction was also allowed subject to the conditions prescribed therein.

Structured Obligations for Infrastructure Sector





Ref: A.P. (DIR Series) Circular No. 28 dated September 26, 2011

Credit enhancement which was earlier limited to be provided by multilateral/ regional financial institutions, Government owned Financial Institutions and Infrastructure Finance Companies, was allowed to direct and indirect equity holders. Both direct foreign equity holders (minimum holding upto 25% of paid up capital) and indirect foreign equity holder (minimum holding upto 51% of paid up capital) were since the date of the Circular permitted to provide credit enhancement to Indian Companies engaged exclusively in the development of Infrastructure.

External Commercial Borrowings from the foreign equity holders





Ref: A.P. (DIR Series) Circular No. 29 dated September 26, 2011

Prior to the aforesaid circular, to avail ECB of more than USD 5 Million from foreign equity holder, lenders needed to have a minimum paid up equity capital of 25%, while the and debt equity ratio of the Company was not supposed to be more than 4:1. To liberalize such condition, vide aforesaid circular, the word debt in debt equity ratio was replaced with ECB liability; equity was defined to include paid up capital, free reserve and share premium, and for calculating the ECB liability both proposed and existing borrowing(s) were required to be reckoned.





Further ECB from foreign equity holders by service sector units, ECB from indirect equity holders and ECB from a group company was required to be considered under approval route.

External Commercial Borrowings in Renminbi (RMB)





Ref: A.P. (DIR Series) Circular No. 30 dated September 27, 2011

Indian Companies which were in Infrastructure Sector were allowed to raise ECB in RMB under the approval route subject to maximum limit of USD 1 billion per annum. The approval is valid for a period of 3 month from the date of issue.

External Commercial Borrowings Policy





Ref: A.P. (DIR Series) Circular No. 51 dated November 23, 2011

All-in-cost over 6 month LIBOR was revised. The revised LIBOR for ECB having an average maturity of 3 to 5 years stood at 350 basis points against earlier 300 basis points.

External Commercial Borrowings Policy – Parking of ECB proceeds





Ref: A.P. (DIR Series) Circular No. 52 dated November 23, 2011

The Reserve Bank of India mandated to bring the proceeds of ECB abroad meant for Rupee expenditure in India such as local sourcing of capital goods, on-lending to Self-Help Group or for micro credit, payment for spectrum allocation etc. immediately to their Rupee accounts. ECB proceeds meant only for foreign currency expenditure were allowed to be retained abroad pending utilization.

Foreign Exchange Management Act, 1999 (FEMA) Foreign Exchange (Compounding Proceedings) Rules, 2000 (the Rules) – Compounding of Contraventions under FEMA, 1999





Ref: A.P. (DIR Series) Circular No. 57 dated December 13, 2011

In order to remove functional inconvenience, it was decided during the month of December to delegate the powers to compound the following contraventions of FEMA to its regional offices:

1. Delay in reporting of inward remittance,
2. Delay in filing of form FC-GPR after allotment of shares and
3. Delay in issue of shares beyond 180 days

The pecuniary jurisdiction of the regional offices were:

The demand draft of Rs. 5000/- is payable by the applicant for making an application for the above compounding.

External Commercial Borrowings for Micro Finance Institutions (MFIs) and Non-Government Organizations (NGOs) – engaged in micro finance activities under Automatic Route





Ref: A.P. (DIR Series) Circular No. 59 dated December 19, 2011

Micro Finance Institutions were permitted to avail ECB up to USD 10 million or equivalent during a financial year for permitted end-uses, under the Automatic Route. Detailed guidelines on ECB for MFIs with necessary safeguards were mentioned therein.

External Commercial Borrowings denominated in Indian Rupees (INR) – hedging facilities for non-resident entities





Ref: A.P. (DIR Series) Circular No. 63 dated December 29, 2011

The Reserve Bank of India allowed the Non-residents to hedge their currency risk as per the prescribed guidelines.

External Commercial Borrowings (ECB)





Ref: A.P. (DIR Series) Circular No. 64 dated January 05, 2012

Both ECB and FCCB were allowed to be raised up to USD 750 million under automatic route in place of existing limit of USD 500 million. The requirements of average maturity period, pre-payment and call/put options conditions for availing additional ECB up to USD 250 million were done away with.