ECBs from Foreign Equity Holders - RBI rationalizes policy
RBI rationalized the ECB policy vis-à-vis ‘foreign equity holders' as ‘eligible lenders' and issued the following clarifications:
(i) Now onwards the term 'debt' in the debt-equity ratio will be replaced with 'ECB liability' and the ratio will be known as 'ECB liability'-equity ratio to make the term signify true position as other borrowings/debt are not considered in working out this ratio;
(ii) The paid-up capital contributed by the foreign equity holder is considered under the extant guidelines for the purpose of calculation of equity for ECBs of or beyond USD 5 million from direct foreign equity holders. Henceforth, besides the paid-up capital, free reserves (including the share premium received in foreign currency) as per the latest audited balance sheet shall be reckoned for the purpose of calculating the equity of the foreign equity holder. Where there are more than one foreign equity holder in the borrowing company, the portion of the share premium in foreign currency brought in by the lender(s) concerned shall only be considered for calculating the ECB liability-equity ratio for reckoning quantum of permissible ECB.
(iii) For calculating the ECB liability, not only the proposed borrowing but also the outstanding ECB from the same foreign equity holder lender should be reckoned.
Also to benefit eligible borrowers, RBI in consultation with the Government of India, decided to consider ECB proposals from foreign equity holders (direct/indirect) and group companies under the approval route as under:-
(i) Service sector units, in addition to those in hotels, hospitals and software, could also be considered as eligible borrowers if the loan is obtained from foreign equity holders. This would facilitate borrowing by training institutions, R&D, miscellaneous service companies, etc;
(ii) ECB from indirect equity holders may be considered provided the indirect equity holding by the lender in the Indian company is at least 51 per cent ; and
(iii) ECB from a group company may also be permitted provided both the borrower and the foreign lender are subsidiaries of the same parent.
A P (DIR Series) Circular No. 29/RBI., Dated: September 26, 2011