External Commercial Borrowing (ECB) Compliance

ECBs are governed by the RBI Master Direction on External Commercial Borrowings, Trade Credits and Structured Obligations (issued under FEMA 1999, Section 6). Borrowers must file Form ECB within 7 days of first drawdown through their authorised dealer (AD) bank, and Form ECB 2 by the 7th of each subsequent month to report actual drawdowns, repayments, and outstanding.

Under the ECB Master Direction, Track I ECBs (minimum average maturity of 3-5 years) must not exceed benchmark rate plus 300 bps per annum; Track III rupee ECBs are capped at the base rate of SBI plus 450 bps. Exceeding these ceilings without prior RBI approval constitutes a contravention under FEMA 1999, Section 6(3)(d) and is compoundable under the Compounding of Contraventions under FEMA Rules, 2000.

Eligible borrowers raising ECBs up to USD 750 million per financial year proceed under the automatic route via an AD Category I bank with no prior RBI approval. Proposals exceeding this limit, involving ineligible borrowers or lenders, or for end-uses outside the permitted list require the approval route under paragraph 2.4 of the ECB Master Direction, which involves a formal application through the AD bank to RBI.

The ECB Master Direction prohibits use of proceeds for: (a) real estate activities other than affordable housing as defined by RBI, (b) investment in capital markets, (c) equity investment in India, (d) on-lending to entities for the above prohibited uses, and (e) purchase of land. Temporary parking of undeployed funds is permitted in deposits with AD Category I banks, money market mutual funds, or government securities.

Failure to file Form ECB or Form ECB 2 within the prescribed timelines constitutes a contravention of FEMA 1999, Section 13. The penalty can reach up to three times the sum involved or INR 2 lakh per day for continuing contraventions. RBI compounds most ECB reporting defaults under the Compounding Rules, 2000; the compounding fee is typically calculated on the outstanding ECB amount for the period of delay.