RBI’s policy on ECB’s ( External commercial borrowings) for startups

AD Category-1 banks can allow Startups raise ECB under the automatic route as per the below guidelines:Eligibility:  If the Central Government of India, recognizes an entity as a Startup, as on the date of raising ECB would be eligible to avail this facility.Maturity: Minimum average maturity period is 3 years.Recognized Lender: Lender should be resident of a country that is a member of FATF or regional bodies associated with FATF (Financial Action Task Force)Overseas branches of Indian banks and overseas wholly owned subsidiary/ joint venture of an Indian entity can not be a lender as per this policy. ECB can be raised by Startups as below:LoansPreference shares (non-convertible, optionally convertible and partially convertible preference shares)Cap on Amount:Startups can only borrow maximum of USD 3 million or equivalent per FY in INR or any convertible currency or combination of both.The lender and the borrower can mutually agree on costs associated with the deal.End use of ECB proceeds:Funds raised through ECB can be only used for anything associated with the borrower’s business.ECB can be converted into equity as long as it’s in line with the regulations associated with foreign investments in startups.Collateral: Lender and borrower can agree upon the collateral/security and it can be movable, immovable assets, patents, IP rights or financial securities.Guarantees: Corporate or personal guarantees can be issued. However, in case of a non-resident they need to qualify as lender to issue the same.Indian banks, Indian FI’s and NBFC’s (Non Banking Financial Company) aren’t permitted to issue a guarantee either in the form of LC, LOU or LOC.Currency Hedging: If the ECB is raised in INR, overseas lender is permitted to hedge the exposure through various derivative products available with AD category -1 banks in India. It is imperative startups availing ECB have the appropriate Forex Risk Management Policy to obviate any risks associated with the currency movement.Retention or investment of ECB proceeds:ECB proceeds can be retained abroad only for expenses in foreign currency, until utilization funds can be invested in the below mentioned liquid assets.Deposits or products offered by banks rated not less than AA (-) by Standard & Poor/ Fitch IBCA or Aa3 by Moody’s.Treasury bills or other instruments of one-year maturity with similar rating mentioned above.Deposits with overseas branches or subsidiaries of Indian banks abroad.Proceeds meant for INR expenditure should be transferred immediately to the borrower’s INR account. Borrowers are allowed to deposit the proceeds, pending utilization, in term deposits with AD category-1 banks not exceeding a period of 1 year.Please click here for Capital Raising Services 
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RBI’s policy on ECB’s ( External commercial borrowings) for startups

Kranthi Tilak Reddy
Blog
29th Aug, 2017
RBI’s policy on ECB’s ( External commercial borrowings) for startups

AD Category-1 banks can allow Startups raise ECB under the automatic route as per the below guidelines:

Eligibility:  If the Central Government of India, recognizes an entity as a Startup, as on the date of raising ECB would be eligible to avail this facility.

Maturity: Minimum average maturity period is 3 years.

Recognized Lender: Lender should be resident of a country that is a member of FATF or regional bodies associated with FATF (Financial Action Task Force)

Overseas branches of Indian banks and overseas wholly owned subsidiary/ joint venture of an Indian entity can not be a lender as per this policy.

ECB can be raised by Startups as below:

  1. Loans

  2. Preference shares (non-convertible, optionally convertible and partially convertible preference shares)

Cap on Amount:

Startups can only borrow maximum of USD 3 million or equivalent per FY in INR or any convertible currency or combination of both.

The lender and the borrower can mutually agree on costs associated with the deal.

End use of ECB proceeds:

Funds raised through ECB can be only used for anything associated with the borrower’s business.

ECB can be converted into equity as long as it’s in line with the regulations associated with foreign investments in startups.

Collateral: Lender and borrower can agree upon the collateral/security and it can be movable, immovable assets, patents, IP rights or financial securities.

Guarantees: Corporate or personal guarantees can be issued. However, in case of a non-resident they need to qualify as lender to issue the same.

Indian banks, Indian FI’s and NBFC’s (Non Banking Financial Company) aren’t permitted to issue a guarantee either in the form of LC, LOU or LOC.

Currency Hedging: If the ECB is raised in INR, overseas lender is permitted to hedge the exposure through various derivative products available with AD category -1 banks in India.

It is imperative startups availing ECB have the appropriate Forex Risk Management Policy to obviate any risks associated with the currency movement.

Retention or investment of ECB proceeds:

ECB proceeds can be retained abroad only for expenses in foreign currency, until utilization funds can be invested in the below mentioned liquid assets.

  1. Deposits or products offered by banks rated not less than AA (-) by Standard & Poor/ Fitch IBCA or Aa3 by Moody’s.

  2. Treasury bills or other instruments of one-year maturity with similar rating mentioned above.

  3. Deposits with overseas branches or subsidiaries of Indian banks abroad.

Proceeds meant for INR expenditure should be transferred immediately to the borrower’s INR account. Borrowers are allowed to deposit the proceeds, pending utilization, in term deposits with AD category-1 banks not exceeding a period of 1 year.

Please click here for Capital Raising Services 

Kranthi
Blog Author

Kranthi Tilak Reddy is one of the co founders and COO of White Matter Advisory services P Ltd. He is an Engineering graduate from SRM University and has done his Masters in finance.Being a true go-getter and an optimist to the core he has grown up the ranks in banking industry at an astonishing rate, his last stint being Associate Director, Business Clients -South with Standard Chartered Bank. With over 10 years of association with SME businesses and clients he certainly brings rich vein of expertise to the WMA table but more importantly his alluring passion towards great and customer service” the foundation on which he asserts WMA has been built.

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