Security for External Commercial Borrowings - Liberalisation
As a measure of rationalisation of the existing procedures, RBI has decided to allow AD Category - I banks to convey no objection under the Foreign Exchange Management Act (FEMA), 1999 for creation of charge on immovable assets, financial securities and issue of corporate or personal guarantees in favour of overseas lender / security trustee, to secure the ECB to be raised by the borrower.
Before according no objection under FEMA, 1999, AD Category - I banks should ensure and satisfy themselves that (i) the underlying ECB is strictly in compliance with the extant ECB guidelines, (ii) there exists a security clause in the Loan Agreement requiring the borrower to create charge on immovable assets / financial securities / furnish corporate or personal guarantee, (iii) the loan agreement has been signed by both the lender and the borrower, and (iv) the borrower has obtained Loan Registration Number (LRN ) from the Reserve Bank.
Creation of Charge on Immovable Assets
The no objection for creation of charge on immovable assets may be conveyed under FEMA, 1999 either in favour of the lender or the security trustee, subject to the following conditions:
(i) No objection shall be granted only to a resident ECB borrower.
(ii) The period of such charge on immovable assets has to be co-terminus with the maturity of the underlying ECB .
(iii) Such no objection should not be construed as a permission to acquire immovable asset (property) in India , by the overseas lender / security trustee.
(iv) In the event of enforcement / invocation of the charge, the immovable asset (property) will have to be sold only to a person resident in India and the sale proceeds shall be repatriated to liquidate the outstanding ECB .
Creation of Charge over Financial Securities
AD Category I banks may convey their 'no objection' under FEMA, 1999 to the resident ECB borrower for pledge of shares of the borrowing company held by promoters as well as in domestic associate companies of the borrower to secure the ECB subject to the following conditions :
(i) The period of such pledge shall be co-terminus with the maturity of the underlying ECB .
(ii) In case of invocation of pledge, transfer shall be in accordance with the extant FDI policy.
(iii) A certificate from the Statutory Auditor of the company that the ECB proceeds have been / will be utilized for the permitted end-use/s.
Issue of Corporate or Personal Guarantee
The no objection to the resident ECB borrower for issue of corporate or personal guarantee under FEMA, 1999 may be conveyed after obtaining -
(i) Board Resolution for issue of corporate guarantee from the company issuing such guarantees, specifying names of the officials authorised to execute such guarantees on behalf of the company or in individual capacity.
(ii) Specific requests from individuals to issue personal guarantee indicating details of the ECB .
(iii) Ensuring that the period of such corporate or personal guarantee is co-terminus with the maturity of the underlying ECB .
RBI Circular NO 01/ 2008- RBI , Dated : July 11, 2008