Modifications in External Commercial Borrowings (ECB) Guidelines
as modified on April 1, 1997

The Government has announced the modified guidelines on ECB policies and procedures. The modifications have been carried out after a review of the existing policy and in the light of the experience of the past one year and emerging priorities. The changes will come into effect from today. The following changes have been made in the existing policy:

I. The Government has proposed to extend the flexibilities at present available for ECBs in the power, telecommunications and railway sectors for rupee expenditure to cover the following infrastructure sectors also:

i) Roads (including bridges)
ii) Ports
iii) Industrial Parks; and
iv) Urban Infrastructure (Water Supply, Sanitation and Sewerage projects as defined in Section 80 IA of Income Tax Act, 1961).

II. Holding companies/promoters will be permitted to raise ECB upto a maximum of US $ 50 million equivalent to finance equity investment in a subsidiary 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.

III. At present, interest rate limits on ECB for project financing allow interest spreads upto 350 basis points above LIBOR/US treasury. In order to give borrowers greater flexibility in designing a debt strategy, it is proposed to allow upto 50% of the permissible debt 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 project financing limit.

IV. Corporate borrowers able to raise long-term resources with an average maturity of 10 years and 20 years will be allowed to use the ECB proceeds upto US $ 100 million and US @ 200 million respectively without any end-use restrictions ie, for general corporate objectives excluding investments in stock markets or in real estate. To be eligible for this purpose, the debt instrument should not include any `put' or `call' options potentially reducing the stated maturities. The total debt allowed through this window will be within the overall limit of the borrower's entitlement for ECB.

V. Corporate borrowers will be permitted to raise ECB to acquire ships/vessels from Indian shipyards.

VI. The present scheme allowing exporters to borrow upto the level of their average export earning for the past three years subject to a maximum of US $ 15 million without end-use restriction will be liberalised as follows:-

Exporters will be permitted to raise ECB upto twice the average amount of annual exports during the previous three years subject to a maximum of US $ 100 million without end-use restrictions, ie, for general corporate objectives excluding investments in stock markets or in real estate. The minimum average maturity will be three years upto US $ 15 million equivalent and seven years for the balance amount exceeding US $ 15 million. The maximum level of entitlement in any one year is a cumulative limit and debt outstanding under the existing US $ 15 million exporters scheme will be netted out to determine annual eligibility.

VII. Corporate borrowers who have raised ECB for import of capital goods and services through Bonds/FRN/Syndicated loans will be permitted to remit funds into India and deploy the same, except investment in stock market or in real estate, as per their business judgement, as an interim measure, till the actual import of capital goods and services takes place or upto one year, whichever is less. 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.

The other terms and conditions outlined in the guidelines on Policies and Procedures for External Commercial Borrowings issued on 19th June, 1996 will continue to remain in force. Consolidated guidelines on ECB Policies & Procedures incorporating the above- mentioned modifications will be issued shortly.

The objective of the modification is to give priority and provide greater flexibility to investors in critical infrastructure sectors, to give priority to exporters in accessing ECB resources and to give additional flexibility to those incurring longer term debt. The total volume of approvals will be carefully monitored consistent with Prudent Debt Management.

Source: Press Note Dt. April 1, 1997
Government of India

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