Govt relaxes guidlines for ECB

The guidelines also stipulate that henceforth denomination of debt service in post default situation will be in rupees or in foreign exchange as envisaged initially in the contract document. Earlier, the liability of an Indian company was denominated in rupees and debt servicing inequivalent foreign exchange.

The government has also permitted 100 per cent prepayment of ECBs where the source of fund is from EEFC accounts. Earlier, the prepayment of ECBs upto 100 per cent of outstanding was permitted provided the prepayment was effected from foreign equity inflow or residual maturity was upto one year.

As per the revised guidelines, 100 per cent export oriented units would be permitted to have foreign currency exposure upto 60 per cent of the project cost. The end-use norms have been considerably relaxed with companies being allowed to use proceeds for any purpose except for investment in real estate and capital markets.

As far as procedures are concerned, presently a borrower has to approach government twice, once for obtaining in-principle approval and secondly for submission for loan agreements for taking on record (TOR). After TOR, the borrower approaches the RBI for FERA approval and permission for draw down. Thus, there are three stages.

As a measure of simplification, thegovernment has 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. The RBI will be required to send a copy of loan documents/TOR records to department of economic affairs.

With regard to default interest, it has been stipulated that interest not exceeding 2 per cent over the applicable rate will be incorporated in the approval letter/TOR letter itself. No further approval would be required from the government or the RBI.

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 be required to obtain specific approval of RBI for remittances of such expenses. The requisite instructions in this regard will be issued by the RBI later.

The press note pointed out that with regard to borrowings by PSUs invariablycontain covenants that government will continue to hold at least 51 per cent of equity in the PSUs concerned. In view of the disinvestment programme such covenants need not be incorporated in the loan agreements.

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