Appendix 56

GUIDELINES ON POLICIES AND PROCEDURES FOR EXTERNAL COMMERCIAL BORROWINGS FOR 1999‑2000

[Issued by the Ministry of Finance, Department of Economic Affairs in July 1999 as amended vide F.No. 4(117)199‑ECB, dated 9‑2‑20001

Amendments made in these Guidelines on 14‑6‑2000 and 1‑9‑2000 are also given separately subsequently

I. ECB POLICY

1. External Commercial Borrowings (ECBs) are defined to include commercial bank loans, buyers' credit, suppliers' credit, securitised instruments such as Floating Rate Notes and Fixed Rate Bonds, etc., credit from official export credit agencies and commercial borrowings from the private sector window of Multilateral Financial Institutions such as International Finance Corporation (Washington), ADB, AFIC, CDC, etc.

2. ECB are being permitted by the Government as a source of finance for Indian Corporates for expansion of existing capacity as well as for fresh investment.

3. The policy seeks to keep an annual cap or ceiling on access to ECII, consistent with prudent debt management.

4. The policy also seeks to give greater priority for projects in the infrastructure and core sectors such as Power, Oil, Exploration, Telecom, Railways, Roads & Bridges, Ports, Industrial Parks and Urban Infrastructure, etc., and the export sector. Development Financial Institutions, through their sub‑lending against the ECB approvals are also expected to give priority to the needs of medium and small scale units.

5. Applicants will be free to raise ECB from any internationally recognised source such as banks, export credit agencies, suppliers. of equipment, foreign collaborations, foreign equity holders, international capital markets, etc., offers from unrecognised sources will be entertained.

Average Maturities for ECB

6. ECBs should have the following minimum average maturities:

(a)Minimum average maturity of three years for external commercial borrowings equal to or less than USD 20 million equivalent in respect of all sectors except 100% E0Us;

(b)Minimum average maturity of five years for external commercial borrowings greater than USD 20 million equivalent in respect of all sectors except 100% E0Us;

(d)Bonds and FRNs can be raised in tranches of different maturities as long as the average maturity of the different tranches within the same overall approval taken together satisfies the maturity criteria prescribed in the ECB guidelines. In such cases, it is expected that longer term borrowings would necessarily precede that of the shorter tenors. The longer the initial tenor the shorter the subsequent tranches can be within the average maturity.

USD 5 Million Scheme

7. All Corporates and Institutions are permitted to raise ECB upto USD 5 million equivalent at a minimum simple maturity of 3 years. Borrowers may utilise the proceeds under this window or general corporate objectives without any end‑use use restrictions excluding investments in stockmarkets or in real estate. 'Me loan amount may be raised in one or more tranches subject to the caveat that the total outstanding loan under this scheme at any point of time should not exceed USD 5 million. Each tranche should have a minimum simple maturity of 3 years.

As a measure of simplification and de‑regulation for the benefit of corporates and institutions, Government have delegated the sanctioning powers to Reserve Bank of India (RBI) under the scheme with effect from 15th December, 1996 and further delegation with effect from 1‑ 1 ‑ 1999.

Corporates and Institutions are advised to submit their applications under this scheme to the Exchange Control Department of RBI, Mumbai.

Exporters/Foreign Exchange Earners

8. Corporates who have foreign exchange earnings are permitted to raise ECB upto, thrice the average amount of annual exports during the previous three years subject to a maximum of USD 200 million without end‑use restrictions, i.e., for general corporate objectives excluding investment in stock markets or in real estate. The minimum average maturity will be three years upto USD 20 million equivalent and five years for ECBs exceeding USD 20 million. The maximum level of entitlement in any one year is a cumulative limit and debt outstanding under earlier approvals (earstwhile USD 15 million exporters scheme and thereafter) will be netted out to determine annual eligibility.

Infrastructure Projects

9. Holding Companies/promoters will be permitted to raise ECB upto a maximum of USD 2001 million equivalent to finance equity investment in a subsidiary/joint venture company implementing infrastructure projects. This flexibility is being given in order to enable domestic investors in infrastructure projects to meet the minimum domestic equity requirements.

10. In case the debt is to be raised by more than one promoter for a single project then the total quantum of loan by all promoters put together should not exceed 11~SD 200 million.

Long‑Term Borrowers

11. (i) ECB of eight years maturity and above will be outside the ECB ceiling, though M0F/R131's prior approval for such borrowings would continue to be necessary. The extent of debt under this window will be reviewed by the Government periodically.

(ii) Funds raised under this window will not be subject to end‑use restriction other than that relating to investment in real estate and stock market upto the extent of:

(a) USD 200 million if the maturity is 8 years and above but less than 16 years.

(b) USD 400 million if the average maturity is 16 years & above.

(iii) Amounts raised above the limit as ii(a) and (b) will be subject to the normal end conditions prescribed under the general ECB guidelines.

(iv)To be eligible for this purpose, the long term debt instrument should not include any "puC or "call" options potentially reducing the stated maturities.

(v)Development Financial Institutions may raise ECB under this window in addition to their normal annual allocation covered by the cap.

(vi)Borrowings under this long‑term window which are exempted from the cap are not eligible for the purpose of enhancing the maturity of shorter term borrowings prescribed under normal ECB window to reach the required average maturity. In case borrowings 8 years maturity & above are to be used to lengthen the maturity of shorter term borrowing then the entire amount must be treated as within the cap.

(vii) Utilisation of the ECB approved earlier under the regular ECB cap will not be a limiting factor for considering proposals under the long term maturity window. However, additional borrowing under either of the window, i.e., regular or under long‑term maturity, is subject to utilisation of earlier approvals in the same window.

(viii) Corporates may raise these borrowings either through FRN/Bond Issues/Syndicated Loan, etc., as long as the maturity and the interest spread are maintained as per the guidelines.

(ix) Project appraisal report is necessary if funds are raised under the long‑term maturity window to be utilised for general corporate objectives subject to the limits prescribed at para (ii) above.

On‑lending by DFIs and other financial intermediaries

12. While DFIs are required to adhere to the average maturity criteria prescribed, namely, minimum of five years for loans more than USD 20 million equivalent and minimum three years for loans less than or equal to USD 20 million equivalent for their borrowing, they are permitted to on‑lend at different maturities. They may also on‑lend for project‑related Rupee expenditure. However, other financial intermediaries are required to adhere to the general ECB guidelines on maturity as well as end‑use in their on‑lending programmes.

13. All financial intermediaries, including DFIs, are required to on‑lend their external commercial borrowings within 12 months of drawdown.

14. To enable better utilisation of ECIls by DFIs, it has been decided that DFIs would be permitted to on lend such Recycled Funds (available with them on account of time mismatch between repayment obligation of their sub‑borrowers vis‑a‑vis those of DFIs to the offshore lenders), out of original ECBs only for import of capital goods and project‑related rupee expenditure. Such Recyled Funds may not be onlent for the following purposes:

(i) Investment in Real Estate;

(ii) Investment in Stock markets including secondary market trading;

(iii)Working capital purposes;

(iv)General corporate purposes.

End‑use requirements

15. (A) External commercial loans are to be utilised for import of capital goods and services (on FOB or CIF basis) and for project related expenditure in all sectors subject to following conditions:

(a) ECB raised for project‑related rupee expenditure must be brought into the country immediately.

(b) ECB raised for import of capital goods and services should be utilised at the earliest and corporates should strictly comply with RBI's extant ‑guidelines on parking ECBs outside till actual imports. R131 would be monitoring ECB proceeds parked outside.

(c)ECB raised is not permitted for investment‑in stock market or in real estate.

(B)'Corporate borrowers will be permitted to raise ECB to acquire ships/vessels from Indian shipyards.

(C)Under no circumstances, ECB proceeds will be utilised for

(i) Investment in stock market; and

(ii) Speculation in real estate.

It has been decided that henceforth EC13s can be used for any purpose except investment in real estate and in capital markets.

Proceeds from Bonds, FRNs & Syndicated Loan

16. Corporate borrowers who have raised ECB for import of capital goods and services through Bonds/FRN/Syndicated loans are permitted to remit funds into India. The funds can be utilised for activities as per their business judgement except investment in stock market or in real estate, for upto one year or till the actual import of capital goods and services takes place, whichever, is earlier. In case borrowers decide to deploy the funds abroad till the approved end‑use requirement arises, they can do so as per the RBI's extant guidelines. RBI guidelines would have to be strictly adhered to. RBI would be monitoring ECB proceeds parked outside.

Sanction of additional ECB to the Company would be considered only after the Company has certified, that it has utilized the amount for the purpose(s) they were raised.

ECB entitlement for new projects

17. All infrastructure and greenfield projects will be permitted to avail ECB to an extent of 35% of the total project cost, as appraised by a recognised Financial Institution/Bank, subject to the fulfilment of other ECB guidelines. However, ECB limits for telecom projects are more flexible and an increase from the present 35% to 50% of the project cost (including the licence fee) will be allowed as a matter of course. All infrastructure projects will be permitted to have ECB exposure to the extent of 50% of the project cost as appraised by a recognised financial institution/bank subject to fulfilment of other ECB guidelines. Greater flexibility beyond 50% of the project cost may be allowed in case of power sector 3 and other infrastructure projects based on merits.

100% export oriented units will be permitted to have foreign currency exposure upto 60% of the project Cost.

Interest rate for project financing

18. At present, interest rate limits on ECB for project financing (i.e., to say non‑recourse financing) allow interest spreads above LIBORMS Treasury to be higher than for normal ECB. Keeping market conditions in mind, some flexibility will be permitted in determining the spread on merits. In order to give borrowers greater flexibility in designing a debt strategy, upto 50% of the permissible debt may be allowed in the form of sub‑ordinated debt at a higher interest rate, provided the composite spread for senior and sub‑ordinated debt taken together comes within the overall project financing limit.

Structured Obligations

19. In order to enable corporates to hedge exchange rate risks and raise resources domestically, Domestic Rupee Denominated Structured obligations would be permitted to be Credit enhanced by International Banks/International Financial Institutions/Joint Venture Partners subject to following conditions:

(a) In the event of default, foreign banks giving guarantee will make payment of defaulted amount of principal and interest after bringing in the equivalent amount of foreign exchange into the country.

(b) FERA clearance should be obtained from RBI in advance of issuance.

(d) In the event of default, the default should be foreign exchange equivalent amount equal to the principal and interest outstanding calculated in rupee terms.

(e) The eligibility of Indian company will always be rupee denominated and, the debt servicing in a post default situation may be in rupees or in forex as envisaged initially in the contract document.

(f) The guarantee fee/commission/charges and other incidental expenses to the Indian company should be in rupee terms only. All‑in‑cost on this account should not exceed 3% p.a. in rupee terms.

(g) In case of the proposals relating to sectors where conditions apply clearances, e.g., relating to the assignability licenses, etc., these should be obtained in advance.

(h) In case of default, the interest rate could be coupon on the Bond/or 250 bps over prevailing secondary market yield of 5‑year GOI security, whichever is higher.

Other Terms and Conditions

20. Apart from the maturity and end‑use requirements as per paras above, the financial terms and conditions of each ECB proposal are required to be reasonable and market‑related. The choice of the sourcing of ECB currency of the loan, and the interest rate basis (i.e. floating or fixed), will be left to the borrowers.

Security

21. The choice of security to be provided to the lenders/suppliers will also be left to the borrowers. However, where the security is in the form of a guarantee from an Indian Financial Institution or from an Indian Scheduled Commercial Bank, counter‑guarantee or confirmation of the guarantee by a Foreign Bank/Foreign Institution will not be permitted.

Exemption from withholding tax

22. Interest payable by an industrial undertaking in India, related to external commercial borrowings as approved by GOI/RBI would be eligible for tax exemptions as per Section 10(15)(iv)(b), (d) to (g) of the Income‑tax Act, 1961. Exemptions under section 10(15)(iv)(b), (d) to (g) are granted by Department of Economic Affairs while exemption under section 10(15)(iv)(c) is granted by Department of Revenue, Ministry of Finance.

Approval under FERA

23. After receiving the approval from ECB Division, Department of Economic Affairs, Ministry of Finance, the applicant is required to obtain approval from the Reserve Bank of India under the Foreign Exchange Act, 1973, and to submit an executed copy of the Loan Agreement to this Department for taking the same on record, before obtaining the clearance from RBI for drawing the loan. Monitoring of end‑use of ECB will continue to be done by RBI.

24. At present, ECB approvals under USD 3 million scheme (enhanced to US 5 million) is given by RBI and all other ECB proposals are processed in DEA. As a measure of further simplification and rationalisation, Government has decided to delegate the ECB sanctioning power to RBI up to USD 10 million under all the ECB schemes except structured obligation which is at present being administered by DEA. Accordingly, applications for approval upto USD 10 million will be considered by the Exchange Control Department of RBI, Mumbai, This change in the ECB guidelines would be effective from 1‑1‑1999. Accordingly, corporates seeking ECBs upto USD 10 million may approach RBI after 1‑1‑1999 and applications received in the ECB Division, Ministry of Finance prior to 1‑1‑1999 will be processed by Ministry of Finance.

Short‑term loan from RBI

25. While ECB for minimum maturity of three years and above will be sanctioned by Department of Economic Affairs, Ministry of Finance, approvals of short term foreign currency loans with a maturity of less than three years will be sanctioned by RBI, according to RBI guidelines.

Validity of approval

26. Approvals are valid for a period of six months,. i.e., the executed copy of the loan agreement is required to be submitted within this period. In the case of FRNs, Bonds, etc., the same are required to be launched within this period.

In case of powers projects, the validity of the approval will be for a period of one year and 9 months in the case of telecorn sector project. Bonds, Debentures, FRNs and other such instruments will have additional validity period of three months for all the ECB approvals across the board. Extension will not be granted beyond the validity period. However, borrowers are free to submit fresh application, after a gap of one month from the expiry of validity period which will be evaluated in the light of the ECB guidelines applicable at that time.

In case of infrastructure projects, however, because closure may get delayed for reasons beyond the investor's control, extension of validity may be considered on merits.

Pre‑payment of ECB

27.

(a) Prepayment facility would be permitted if they are met out of inflow of foreign equity,

(b) In addition to ECB being prepaid out of foreign equity, corporates can avail either of following two options for prepayment of their ECBs:

(i) On permission by the Government, prepayment may be undertaken, within the permitted period, of all ECBs with residual maturity up to one year.

(ii) Prepayment upto 10% of outstanding ECB to be permitted once during the life of the loan, subject to the company complying with the ECB approval terms. Those companies who had already availed repayment facility of 20% earlier would not be eligible.

(i) Prepayment approval for ECBs other than Bonds/Debentures/FRNs will be 15 days or period upto to next interest payment date, whichever is later.

(ii) In case of Bonds/FRNs, validity of permission will not be more than 15 days.

Prepayment will be allowed with the prior permission of ECB sanctioning authority, i.e., Department of Economic Affairs, Government of India/ECD, RBI.

100% prepayment will be permitted where the source of funds in from EEFC account(s).

By a Notification dated FEMA 30/2000/RB, dated 17‑11‑2000 corporates who are expert oriented units and others can credit up to 70% and 50% of their foreign exchange earnings to their EEFC accounts, respectively. To enable the corporates to take advantage of lower interest rates and pre‑pay the ECBs it has now been decided to allow then to credit higher than above percentages of export proceeds to their EEFC account on case by case basis. Application for the purpose may be to the Chief General Manager, Exchange Control Department, Reserve Bank of India, Central Office, Central Office Building, Post Box No. 1055 Mumbai ‑ 400 001.

Refinancing the existing foreign currency loan

28. Refinancing of outstanding amounts under existing loans by raising fresh loans at lower costs may also be permitted on a case‑to‑case basis, subject to the condition that the outstanding maturity of the original loan is maintained. Rolling over of ECB will not be permitted.

29. A corporate borrowing overseas for financing its Rupee‑related expenditure and swapping its external commercial borrowings with another corporate which requires foreign currency funds will not be permitted.

Liability Management

30. Corporates can undertake liability management for hedging the interest and/or exchange rate risk on their underlying foreign currency exposure. Prior approval of this Department or RBI has been dispensed with for concluding or winding up of the following transactions:

(i) Interest rate swaps

(ii) Currency swaps

(iii) Coupon swaps

(iv) Purchase of interest rate caps/collars

(v) Forward rate agreements

Corporates may refer to RBI's Circular No. A.D. (M.A. Series) Circular No. 12, dated August 5, 1996 (Annex. I).

II. PROCEDURE FOR SEEKING ECB APPROVAL

31. Applications for approval up to USD 10 million will be considered by the Exchange Control Department of RBI, Mumbai, w.e.f. 1‑1‑1999.

32. Applications for amount more than USD 10 million and under structured obligation may be submitted by the borrowers in the prescribed format (Annex. II) to the Joint Secretary (ECB), Department of Economic Affairs, Ministry of Finance, North Block, New Delhi‑110001.

33. The application should contain the following information:

(i) An offer letter from the lender giving the detailed terms and condititions;

(ii) Copy of Project Appraisal Report from a recognised Financial Institution/Bank, if applicable.

(iii) Copies of relevant documents and approvals from Central/State Governments, wherever, applicable, such as FIPB, CCEA and SIA clearances, environmental clearance, techno‑economic clearance from Central Electricity Authority, valid license from Competent Authorities, no objection certificate from Ministry of Surface Transport, evidence of exports/foreign exchange earnings from the statutory auditor based on the bankers realisation certificate, registration with RBI in case of NBFCs, approval for overseas investment from RBI, etc.

Review

34. The ECB guidelines and procedures will be periodically reviewed by the Government in the light of prudent management of external debt, changing market conditions, sectoral requirement, etc.

35. The ECB policy and procedures outlined above is operative from 1^st April, 1999.

36. Guidelines are available at web site http/www.nic.in/finmin.

ANNEXURE‑I

HEDGING OF LOAN EXPOSURES

1. As authorised dealers are aware, presently Indian corporates are required to obtain approval on a case‑to‑case basis from the Ministry of Finance, Government of India, before concluding of unwinding transactions relating to liability management.

2. It has since been decided to permit authorised dealers to offer the undernoted products to corporates either by booking the transaction overseas or on a back‑to‑back basis, without prior approval of the Government or Reserve Bank.

(i) Interest rate swaps

(ii) Currency swaps

(iii) Coupon swaps

(iv) Purchase of interest rate caps/collars

(v) Forward Rate Agreements

3. Before entertaining the corporate's request, authorised dealers should ensure that

(i) the Reserve bank has accorded final approval for the conclusion of the underlined loan transaction;

(ii) the notional principal amount of the hedge does not exceed the outstanding amount of the foreign currency loan;

(iii) the maturity of the hedge does not exceed the remaining life to maturity of the underlying loan;

(iv) the Board of Directors of the corporate has approved (one‑time) the financial limits and authorised designated officials to conclude the hedge transactions.

4. Corporates shall also be permitted to unwind from a hedge transaction without prior approval of the Government/Reserve Bank.

5. Authorised dealers should also ensure that the corporates submit the following reports/certificate:

(a) A report showing complete details of the transactions concluded (booked as well as cancelled) duly countersigned by the authorised dealer to the Regional office of the Reserve Bank under whose jurisdiction they are situated, within a week from the date of conclusion of the transaction.

(b) A quarterly report to the corporate's Board, furnishing details of all such transactions and a copy thereof alongwith Board's resolution.

(c) An annual certificate from the statutory auditors that the company has complied with all the prescribed terms and conditions.

6. Payment of up front premia, if any, as well as all other charges incidental to the hedging transactions may be effected by authorised dealers without prior approval of Reserve Bank.

7. Authorised dealers should ensure that the hedge transactions are allowed to be put through solely for the purpose of liability management and on no account should 'stand alone' deals be permitted.

8. Consequently, a new paragraph 3C, 14 may be added as per slip in Part C of Chapter 3 of the Exchange Control Manual (1993 edition) and a suitable entry may be made on Index thereto.

9. The directions contained in this circular have been issued under section 73(3) of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and any contravention or non‑observance thereof is subject to the penalties prescribed under the Act.

Yours faithfully,

KHIZER AHMED

Chief General Manager

ANNEXURE‑II

FORMAT FOR PROVIDING INFORMATION TO DEPARTMENT OF ECONOMIC AFFAIRS, MINISTRY OF FINANCE FOR SEEKING ECB APPROVAL

1. (i) Name of the Company;

(ii) Private Sector/Joint Sector/Public Sector, etc;

(iii) Activities, in brief.

2. In case (i) is a subsidiary, then name of the Group Company:

3. (i) Name of the Project;

(ii) Whether new/expansion/upgradation

4. Location of the project (Address):

5. Total project cost:

(i) In USD equivalent

(ii) In Rs. crores.

Overall financing plan	USD Mio. Rs. Cr.
(i) Debt
Domestic	Commercial Banks Financial Institution Others (please specify)
Foreign	Loans FRNs/Bons FCCBs others
(ii) Equity
Domestic	Promoter's Public Corporates Financial Institutions others (please specify)
Foreign	Promoter's others (please specify)
(iii) Grand Total (i.e., total project cost as in item 5 above)

7. Date of commissioning of the project

8. Amount of ECB proposed to be availed

(i) In Foreign Currency

(ii) In USD equivalent

9. Nature of ECB:

(i) Supplier's Credit

(ii) Buyer's Credit

(iii) Syndicated Loan

(iv) Export Credit

(v) Loan from foreign collaborator/equity holder

(vi) FRN/Bonds

(vii) Others (please specify)

10. Name of Lender/Stipplier

11. Terms and conditions in brief

(i) Rate of Interest

(ii) All‑in‑cost

(iii) Repayment schedule

(iv) Average maturity

12. Purpose of raising ECB

(i) For financing capital goods (please attach a list of the items)

(a) Imports

(b) Indigenous

(ii) For general corporate objectives

(iii) If (i)(a), then a confirmation that they are not in the negative list of Export‑Import Policy.

13. Expected schedule of drawdown, with date of first drawdown:

14. Whether the project has been appraised by a Financial Institution/Bank: Yes/No.

(If yes, a copy thereof to be enclosed).

15. Financial ratios:

(a) (i) Foreign debt to foreign equity ratio:

(ii) Total debt to total equity ratio;

(iii) Total ECB as a percentage of total project cost:

(b) (i) Total ECB exposure of the applicant company and as a percentage of total debt.

16. Export performance of the Company (in USD equivalent; with evidence) if any:

(i) During current and last 3 years; and

17. ECB availed by the Company during the current and the last 3 years:

Amount (USD (eq.)

Year of approval

Purpose

18. ECB availed by other Group Companies during the current and the last 3 years:

Name of the Co.

Amount (USD (eq.)

Year of approval

Purpose

Please attach a certificate from Statutory Auditor regarding the amount utilised.

19. Details of ECB proceeds parked outside the country by the company and other group companies.

Name of company

Amount of loan & amount drawn

Date of approval & taken on record

Amount of ECB proceeds parked outside

Period for which permission granted for parking (enclosed copy or RBI approval)

20. Details of contact person (such as name, designation, postal address, tele/fax number), to enable quick references for information/clarifications required, if any, relating to the application.

21. Certified that the information given above is true to the best of my knowledge.

Authorised signatory

(Name of the Company)

Place:

Date:

CHANGES IN ECB GUIDELINES

The Govemment had last issued ECB guidelines in July 1999. Govemment keeps ECB policy under constant review to take into account among various factors, changes in extemal financial markets, requirements of corporates, access to intemational capital markets. After review, Govemment ahs decided to make the following changes in ECB Guidelines:

I. Structured Obligation

As per para 19(e) of ECB guidelines, the liability of an Indian company shall be denominated in Indian Rupees and debt servicing may be done in equivalent foreign exchange funds. The Govemment has decided that henceforth denomination of debt service in a post default situation may be in Rupees or in Forex as envisaged initially in the contract document.

II. Infrastructure Project

ECB guidelines (para 9 & 10) give the flexibility to domestic investors to raise ECBs up to a maximum of US $50 million equivalent to finance their equity investment in a subsidiary/joint venture company implementing infrastructure project(s). In order to provide greater flexibility to domestic holding companies/promoters. Government has decided to enhance this limit to US $ 200 million to finance equity investment in downstream infrastructure project(s).

III. Prepayment of ECBs

At present prepayment of ECBs upto 100% of outstanding balance is permitted provided prepayment is to be effected from foreign equity inflow or residual maturity is up to one year. In addition, it has been decided to permit 100% prepayment, where the source of funds is from EEFC account(s).

IV. 100% EOUs

100% export oriented units will be permitted to have foreign currency exposure upto 60% of the project cost.

V. End use relaxation

Over a period of time, Government has progressively relaxed end‑use(s) restriction on the use of the foreign currency loans. It has been decided that henceforth ECBs can be used for any purpose except investment in real estate and in capital markets.

VI. Government equity holding in PSUs

It has been found that borrowings by PSUs invariably contain covenants that Govemment will continue to hold at least 51 % of equity in PSUs concerned. In view of on‑going disinvestment programmes such covenants should not be incorporated in the loan agreements.

VII. Operating Expenses

In respect of operating and out‑of‑pocket expenses incurred for ECB approvals not resulting in loans, such expenses will be allowed as per prevailing RBI guidelines on current account transactions subject to a cap. Corporates will obtain specific approval of RBI for remittances of such expenses. RBI will issue appropriate instructions in this regard.

VIII. ECB approval procedures

(a) At present a borrower has to approach Government twice, once for obtaining inprinciple approval and secondly for submission of loan agreement(s) for taking on record (ToR). After ToR, the borrower approaches RBI for FERA approval and permission for draw down. Thus, there are three stages. As a measure of simplification, it has been decided that the regional offices of RBI would take loan agreement/documents on record of all ECB approvals once they have been approved by the Government/RBI as the case may be. RBI will issue appropriate instructions in this regard.

(b) Default Interest. ‑Default interest not exceeding 2% over the applicable rate will be incorporated in the approval letter/taken on record letter itself. No further approval would be required from the Government/RBI.

IX. ECB entitlement for infrastructure projects

All infrastructure projects will be permitted to have ECB exposure to the extent of 50% of the project cost as appraised by a recognised financial institution/bank, subject to fulfilment of other ECB guidelines. Greater flexibility beyond 50% of the project cost may be allowed in case of power sector and other infrastructure projects based on merits.

X. Above amendments to the ECB guidelines will come into force from date of issue of this Press Release.

[Issued by Ministry of Finance Department of Economic Affairs, ECB Division vide F.No. 5(117)199‑ECB, dated 9‑2‑2000]

Press Releases, dated 14‑6‑2000

The Government had issued a Press Release dated 9th February, 2000, to amend ECB guidelines, released in July, 1999. Taking into account changes in external financial markets, requirements of corporates, access to international capital markets and with a view to liberalising ftirther ECB approvals, the Government have decided to make the following further changes in the ECB guidelines.

I. ECB approvals on automatic route

The Government has decided, in principle, to place fresh ECB approvals upto US $50 millions and all refinancing of existing ECBs under the automatic route. Necessary software and institutional arrangements are being developed to operationalise the automatic route. RBI is being requested to work out modalities for implementation.

II. Delegation to RBI for fresh ECB approvals for amounts up to US $ 100 million

Presently, the RBI is empowered to give ECB approvals under "US $ 5 Million Scheme" and to approve ECBs up to US $ 10 million under all other windows. The Government has decided to delegate further the ECB sanctioning powers up to US $ 100 million under all windows to the Reserve Bank of India. Corporates and institutions are being advised to submit their applications to the Exchange Control Department of RBI, Central Office, ECB Division, Mumbai.

III. Further enhancement and delegation in respect of prepayments of ECBs:

At present, prepayment approvals are being given by the Ministry of Finance/RBI, depending on who had given the initial ECB approval. Henceforth, the RBI will give all such approvals, as per prevailing guidelines on prepayment, even in cases where ECBs have been approved earlier by the Ministry of Finance. For this purpose, corporates concerned may approach Exchange Control Department, RBI, Central Office, ECB Division, Mumbai, through the designated authorised dealer giving details, as set out in the annexure to this press release, duly certified by the statutory auditors.

IV. Definition of infrastructure sector for ECB purposes:

Maximum limit of ECB for financing equity investment in a subsidiary/joint venture company, implementing infrastructure projects was enhanced from US $ 50 million to US $ 200 million vide press release dated 9th February, 2000. Similarly, ECB exposure for all infrastructure projects was enhanced to 50 per cent. of the project cost as appraised by a recognised financial institution/bank. It was also decided to even allow exposure beyond 50 per cent. of the project cost in the case of power projects and other infrastructure projects on merits of each case. It is clarified that the following sectors will qualify as "infrastructure sectors" under the ECB guidelines:

(a) Power,

(b) Telecommunication,

(d) Roads including bridges,

(e) Ports,

(f) Industrial parks,

(g) Urban infrastructure‑Water supply, sanitation and sewage projects.

V. All‑in‑cost ceiling:

For the information of all concerned, the existing "all‑in‑cost ceilings" for normal projects, infra‑structure projects and for long term ECBs are 300, 400 and 450 basis points over six months LIBOR, for the respective currency in which the loan is being raised or applicable bench mark(s), as the case may be.

VI. Average maturity:

The average maturity of ECBs for the purpose of ECB guidelines shall be weighted average of all disbursements taking each disbursement individually and its period of retention by the borrower.

VII. Structured obligation facility for NBFCs:

Corporates can avail of the facilities under the credit enhancement scheme as per conditions stated in para. 19 of the ECB guidelines. Non‑Banking Finance Companies (NBFCs) would also be eligible to avail of this facility on compliance with the following additional conditions

(a) NBFC should be registered with RBI;

(b) It should have earned profits during the last three years; and

However, in the case of NBFCs where a credit enhancement guarantee has been provided by its parent company on "non‑resource and non‑repatfiable basis", the condition of three years' track record of profit will not be applicable and the credit rating of "A or equivalent" would also be acceptable in such cases.

VIII. The above changes in the approval system will be subject to observance of ECB guidelines by the borrowers.

IX. The above amendments to the ECB guidelines will come into force from the date of issue of this Press Release.

ANNEXURE

Request for prepayments should be forwarded with the following information duly certified by the statutory auditors.

1. Loan amount, sanction letter No. and date (Loan Key No.).

2. Net amount drawn after making payment for fee/commission, etc.

3. Amount utilised for approved end‑use duly supported by a certificate from the statutory auditors, indicating that the necessary documentary evidence has already been submitted to the concerned Regional Office of RBI and balance unutilised amount, if any.

4. Amount of ECB proceeds parked abroad‑Name of the bank, account No., RBI's sanction letter, certified copy of latest statement, etc.

5. Amount of loan repaid and balance outstanding.

6. Residuary maturity of the loan and the last date of repayment.

7. Whether any prepayment approval has been obtained by the company against this loan in the past. If so, details thereof.

8. Prepayment premium (excluding bonds/FRN issues).

9. Source of funds from which the prepayment is proposed to be effected.

10. Date of proposed prepayment.

11. If the prepayment is proposed to be made from EEFC account, a certificate from the authorised dealer indicating the amount outstanding in EEFC account.

14th June, 2000 (Sd.) G.S. Dutt,

Joint Secretary to the Government of India,

(Issued by the Ministry of Finance, Department of Economic affairs,ECB Division vide Press Release, dated 14‑6‑2000 F. No. 4(32)/2000‑ECB]

OPERATIONALISATION OF EXTERNAL COMMERCIAL BORROWINGS (ECB) UNDER THE AUTOMATIC ROUTE UP TO US $50 MILLION AND REFINANCING OF EXISTING ECBs

Press Release, dated 1‑9‑2000

The Government had issued a press release on 14th June, 2000, to amend external commercial borrowings (ECB) guidelines, issued in July, 1999. As part of the amendments, it was decided, in principle, to place fresh ECBs approvals upto USD 50 million and all refinancing of existing ECBs under the automatic route. After having reviewed the necessary institutional arrangements, Government have decided to operationalise the automatic route as follows:

I. Automatic route

Under the automatic route arrangement, any corporate, being a legal entity, registered under the Companies Act, Societies Registration Act, Co‑operative Societies Act, including proprietorship/partnership concerns, will henceforth be eligible to enter into loan agreements with overseas lender(s) for raising fresh ECB for an amount up to USD 50 million or for refinancing an existing ECB provided it is in compliance with ECB guidelines framed by Ministry of Finance and regulations/directions/circulars issued by the Reserve Bank of India in this regard. Corporates would not be required to obtain any prior approval for raising ECBs up to USD 50 million or for refinancing of an existing ECB from Ministry of Finance or Reserve Bank of India (RBI).

The corpotate shall submit through an authorised dealer of its choice three copies of loan agreement to the concerned Regional Office of RBI after signing the same with the tender. The Regional Office of RBI would acknowledge the receipt of copies of the agreement and would allot a loan identification number of such an agreement. The primary responsibility to ensure that ECBs raised are in conformity with ECB guidelines and RBI's regulations/directions/circulars would be that of the concerned corporate. If, however, on scrutiny of the loan agreement, at a later stage, any violation is found, appropriate action will be taken by RBI under the FEMA,

Corporate(s) would also be permitted to make necessary draw‑down under the automatic route without any further permission from RBI. They would, however, be required to file quarterly returns in a prescribed format through their authorised dealers. The withholding tax exemption would continue to be granted by Ministry of Finance (Department of Revenue/Department of Economic Affairs).

II. Common formats for ECB applications

There are different ECB formats for making application to the Government of India (required presently in the cases of ECB applications for more than USD 100 million) and to the Reserve Bank of India (now required for application for more than USD 50 million but up to USD 100 million). It has now been decided to prescribe uniform formats for ECB applications.

III. The Reserve Bank of India would issue necessary regulations/directions in respect of the automatic route for approvals and refinancing and prescribe common formats. The above amendments will be effective from the date of issue of notification of such regulations/directions.

[F. No. 4(32)/2000‑ECB]

[Issued by the Ministry of Finance, Department of Economic Affairs (ECB and Pension Reforms Division), PIB Press Release, New Delhi, dated 1^st September, 2000.]

RBI OPERATIONALISES AUTOMATIC ROUTE FOR ECBs

Press Release, dated 4‑9‑2000

The Reserve Bank of India (RBI) has decided to operationalise the automatic route for fresh external commercial borrowings (ECBs) upto US $ 50 million and all refinancing of existing ECBs with immediate effect. Under the automatic route arrangement, any legal entity, registered under the Companies Act, Societies Registration Act, Co‑operative Societies Act, including proprietorship/partner‑ship concerns, will now be eligible to enter into loan agreements with overseas lender(s) for raising fresh ECB with an average maturity of not less than three years for an amount upto US $50 million and for refinancing of an existing ECB contracted in compliance with both the ECB guidelines framed by the Ministry of Finance and the regulations/directions/circulars issued by the Reserve Bank of India in this regard. Corporates would not be required to obtain prior approval for the purpose.

It may be recalled that the Government of India issued a press release on 1 September, 2000, permitting fresh external commercial borrowings upto US $ 50 million and refinancing of existing EC13s under the automatic route. According to the press release, corporates availing of fresh ECB upto US $ 50 million and for refinancing of an existing ECB under the automatic route would be required to submit only three copies of the loan agreement so executed to the concerned Regional Office of the Reserve Bank through an authorised dealer of their choice. Corporates can also make necessary draw‑downs under the automatic route without prior permission from the Reserve Bank of India. The requirement of filing quarterly returns in a prescribed format through their authorised dealers would continue. The withholding tax exemption would continue to be granted by the Ministry of Finance (Department of Revenue/Department of Economic Affairs).

[Press Release No. 34912000‑2001, issued by Reserve Bank of India,dated 4 September, 2000]

EXTERNAL COMMERCIAL BORROWINGS (ECB)

Press Release, dated 5‑9‑2000

Attention of authorised dealers is invited to the Reserve Bank Notification No. FEMA 312000RB, dated 3 May, 2000

2. With a view to liberalising further ECB approvals, the Government have vide Press Release F. No. 4(32)‑2000 ECB dated 1 September, 2000, decided to operationalise the automatic route for fresh ECB approvals upto US $ 50 million and all refinancing of existing ECBs with immediate effect.

3. Accordingly, under the automatic route arrangement, any legal entity, registered under the Companies Act, Societies Registration Act, Co‑operative Societies Act, including proprietorship/partner‑ship concerns, will henceforth be eligible to enter into loan agreements with overseas lender(s) for raising fresh ECB with average maturity of not less than 3 years for an amount upto US $ 50 million and for refinancing an existing EC13, provided it is in compliance with both the ECB guidelines framed by the Ministry of Finance, Government of India, and the regulations/directions/circulars issued by Reserve Bank in this regard. Corporates would not be required to obtain prior approval for raising ECB upto US $ 50 million and for refinancing of an existing ECB from the Ministry of Finance/Reserve Bank.

The corporates shall ensure that they raise ECB from an internationally acceptable and/or recognised lender, such as export credit agencies, supplies of equipments, foreign collaborators, foreign equity holders, international capital markets, reputed international banks and financial institutions, etc. Further, the loan should be organised through a reputed merchant banker registered with the regulatory authorities of the host country, viz., USA, Japan, EU countries, Singapore and such other countries as may be notified from time to time by the Government of India. The lenders should be recognised and registered in the host countries for the purpose of extending international finance.

The corporate shall submit through an authorised dealer of its choice, three copies of the loan agreement to the concerned Regional Office of the Reserve Bank after signing the same with the lender. The Regional Office of the Reserve Bank would acknowledge receipt of the copies of the agreement and will allot a loan identification number to such an agreement. The primary responsibility to ensure that ECBs raised are in conformity with the ECB Guidelines and the Reserve Bank regulations/directions/circulars will be that of the concerned corporate. If, however, at a later stage, any violation is found, appropriate action will be taken by Reserve Bank under the Foreign Exchange Management Act, 1999.

The Corporates will also be permitted to make necessary draw‑downs under the automatic route, without prior permission from the Reserve Bank. It will, however, be required to file quarterly returns in a prescribed format through the authorised dealer. The withholding tax exemption would continue to be granted by the Ministry of Finance (Department of Revenue/Department of Economic Affairs), Government of India.

4. Authorised dealers, as hitherto, shall be required to forward all applications to the Chief General Manager, ECB Division, Exchange Control Department, Reserve Bank of India, Central Office, Mumbai‑400 001, to obtain prior permission for prepayment of outstanding ECBs (viz., 10 per cent of the outstanding amount once during the life of the loan or ECBs with resident maturity upto one year).

5. Opening of foreign currency account for parking ECB proceeds temporarily, pending utilisation, will require prior approval of the concerned Regional Office of Reserve Bank.

6. Amendments to the FEMA Notification referred to above are being issued separately.

7. Authorised dealers may bring the contents of this circular to the notice of their concerned constituents.

8. The directions contained in this circular have been issued under section 10(4) and section 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and any contravention or nonobservance thereof is subject to the penalties prescribed under the Act.

[Circular No. 10 AP (DIR Series), issued by RBI, Exchange Control Department, dated 5‑9‑2000]

(XIX) EXTERNAL COMMERCIAL BORROWINGS (ECBs)‑PRE‑PAYMENT OUT OF THE EEFC ACCOUNTS

A.P. (DIR Series) Circular No. 26, dated Ist March, 2002

Authorised dealers are aware that ECBs can be prepaid by corporate borrowers to the extent of the balances in their Exchange Earner's foreign Currency (EEFC) accounts, with the approval of the Reserve Bank, Authorised dealers are also aware that in terms of Notification No. FEMA 30/ 2000/RB, dated 17th November, 2000, corporates who are export‑oriented units and other can credit up to 70 per cent and 50 per cent of their foreign exchange earnings to their EEFC accounts, respectively.

2. To enable the corporates to take advantage of lower interest rates and pre‑pay the ECBs it has now been decided to allow them to credit higher than the above percentages of export proceeds to their EEFC accounts on a case by case basis. Application for the purpose may be made to the Chief General Manager, Exchange Control Department, Reserve Bank of India, Central Office, Central Office Building, Post Box No. 1055, Mumbai‑400 001. A proforna. of the application is annexed.

3. Authorised dealers may bring the contents of this circular to the notice of their concerned constituents.

4. The directions contained in this circular have been issued under section 10(4) and section 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999).

Application for pre‑payment of outstanding ECB out of EEFC Account

(I) Name and address of the borrower

(II) Name and address of the lender

(III) Details of loan :

(a) Approval number and date

(b) GOI/RBI loan key number

(d) Purpose of ECB/Utilisation certified by C.A.

(e) Amount of ECB

(f) Amount drawn

(g) Amount outstanding

(h) Maturity of loan/Residual maturity of loan

(IV) Details of the current balance in the EEFC account

(V) Details of export bills to be realised as on date

(VI) Percentage of export proceeds proposed to be credited to the EEFC Account

(VII) ECB‑2 statement till ____________ month have been submitted to the________ office of the Reserve Bank of India

Date: Stamp Signature of the authorised

official of the company

We have verified the above particulars and have found the same to be in order.

Date Stamp Signature of the authorised official

Name of the bank/branch

Ad Code No.