Regulatory Guidelines
The ECBs can be raised within the policy guidelines of Government of India / Reserve Bank of India, applicable from time to time. The principal regulation governing the ECBs is the clause (d) of sub-section 3 of section 6 of the Foreign Exchange Management Act, 1999 read with section 6 of Notification No. FEMA 3/ 2000-RB dated May 3, 2000 as amended from time to time. The Reserve Bank of India had issued a master circular on the ECBs on July 1, 2004, which gives an exhaustive set of guidelines applicable at present.

ECBs can be accessed under two routes, viz., (i) Automatic Route and (ii) Approval Route. Approval route is for financial institutions dealing exclusively with infrastructure or export finance such as IDFC, IL&FS, Power Finance Corporation, Power Trading Corporation, IRCON and EXIM Bank and for Banks and financial institutions which had participated in the textile or steel sector restructuring package. Moreover, cases falling outside the purview of the automatic route with regard to limits on amount and maturity period also fall under the approval route.

The salient features of the current policy under automatic route are given below:

• Eligible Borrowers
  Corporates registered under the Companies Act except financial intermediaries (such as banks, financial institutions (FIs), housing finance companies and NBFCs) are eligible. Individuals, Trusts and Non-Profit Organisations are not eligible to raise ECBs.
  
  
• Amounts
  The maximum amount of ECBs which can be raised by an eligible borrower under the Automatic Route is US$ 500 million during a financial year.

• Maturities for ECBs
  ECBs should have the following minimum maturities:
  • ECBs up to US$ 20 million or equivalent - 3 years average maturity
  • ECBs above US$ 20 million or equivalent - 5 years average maturity
    
    
• All-in-cost Ceiling
  All-in-cost includes rate of interest, other fees and expenses in foreign currency except commitment fee, pre-payment fee, and fees payable in Indian Rupees. Moreover, the payment of withholding tax in Indian Rupees is excluded for calculating the all-in-cost.
  
  The following ceilings are presently valid:
  
  

  Minimum Average Maturity Period	All-in-cost Ceilings over six  month LIBOR*
  Three years and up to five years	200 basis points
  More than five years	350 basis points

  * for the respective currency of borrowing or applicable benchmark.
  
  
• End Use
  • ECBs can be raised only for investment (such as import of capital goods, new projects, modernization/expansion of existing production units) in real sector - industrial sector including small and medium enterprises (SME) and infrastructure sector - in India. Infrastructure sector is defined as (i) power, (ii) telecommunication, (iii) railways, (iv) road including bridges, (v) ports, (vi) industrial parks and (vii) urban infrastructure (water supply, sanitation and sewage projects);
  • ECB proceeds can be utilised for overseas direct investment in Joint Ventures (JV)/Wholly Owned Subsidiaries (WOS) subject to the existing guidelines on Indian Direct Investment in JV/ WOS abroad.
  • Utilisation of ECB proceeds is permitted in the first stage acquisition of shares in the disinvestment process and also in the mandatory second stage offer to the public under the Government's disinvestment programme of PSU shares.
  • Utilisation of ECB proceeds is not permitted for on-lending or investment in capital market by corporates.
  • Utilisation of ECB proceeds is not permitted in real estate. The term 'real estate' excludes development of integrated township as defined by Ministry of Commerce and Industry, Department of Industrial Policy and Promotion, SIA (FC Division), Press Note 3 (2002 Series, dated 04.01.2002).
  • End-uses of ECB for working capital, general corporate purpose and repayment of existing Rupee loans are not permitted.