RBI Updates

Repayment of Rupee Loans and/or for fresh Rupee capital expenditure

Presently Indian companies in manufacturing and infrastructure sector and having foreign exchange earnings are allowed to avail of external commercial borrowing (ECB) for repayment of outstanding Rupee loans towards capital expenditure and/or fresh Rupee capital expenditure under the approval route. The overall ceiling for such ECBs is USD 10 billion. The maximum permissible ECB that can be availed of by an individual company is limited to 50 per cent of the average annual export earnings realised during the past three financial years. Further, the liability arising out of ECB has to be extinguished only out of the foreign exchange earnings of the borrowing company

Reserve Bank of India vide A.P. (DIR Series) Circular No. 26 dated 11th September, 2012 has now decided the following: (a) to enhance the maximum permissible limit of ECB that can be availed of to 75 per cent of the average foreign exchange earnings realized during the immediate past three financial years or 50 per cent of the highest foreign exchange earnings realized in any of the immediate past three financial years, whichever is higher; (b) in case of Special Purpose Vehicles (SPVs), which have completed at least one year of existence from the date of incorporation and do not have sufficient track record/past performance for three financial years, the maximum permissible ECB that can be availed of will be limited to 50 per cent of the annual export earnings realized during the past financial year; and (c) The maximum ECB that can be availed by an individual company or group, as a whole, under this scheme will be restricted to USD 3 billion.

Bridge Finance for infrastructure sector

Presently Indian companies in the infrastructure sector are allowed to import capital goods by availing of short term credit (including buyers’ / suppliers’ credit) in the nature of 'bridge finance', under the approval route, subject to the following conditions:- (i) the bridge finance shall be replaced with a long term ECB; (ii) the long term ECB shall comply with all the extant ECB norms; and (iii) prior approval shall be sought from the Reserve Bank for replacing the bridge finance with a long term ECB.

As per extant guidelines on External Commercial Borrowings (ECB), “Infrastructure” sector is defined as (i) power, (ii) telecommunication, (iii) railways, (iv) roads including bridges, (v) sea port and airport, (vi) industrial parks, (vii) urban infrastructure (water supply, sanitation and sewage projects), (viii) mining, exploration and refining and (ix) cold storage or cold room facility, including for farm level pre-cooling, for preservation or storage of agricultural and allied produce, marine products and meat.

Reserve Bank of India vide A.P. (DIR Series) Circular No. 27 dated 11th September, 2012 has now decided to allow refinancing of such bridge finance (if in the nature of buyers’/suppliers’ credit) availed of, with an ECB under the automatic route subject to the following conditions:- (i) the buyers’/suppliers’ credit is refinanced through an ECB before the maximum permissible period of trade credit; (ii) the AD evidences the import of capital goods by verifying the Bill of Entry; (iii) the buyers’/suppliers’ credit availed of is compliant with the extant guidelines on trade credit and the goods imported conform to the DGFT policy on imports; and (iv) the proposed ECB is compliant with all the other extant guidelines relating to availment of ECB.

Trade credits for import into India

Presently, for import of capital goods as classified by DGFT, AD banks are allowed to approve trade credits up to USD 20 million per import transaction with a maturity period of more than one year and less than three years (from the date of shipment). No roll-over/extension is permitted beyond the permissible period. AD banks are also permitted to issue Letters of Credit/guarantees/Letter of Undertaking (LoU) /Letter of Comfort (LoC) in favour of overseas supplier, bank and financial institution, up to USD 20 million per transaction for a period up to three years for import of capital goods, subject to prudential guidelines issued by the Reserve Bank from time to time. The period of such Letters of credit / guarantees / LoU / LoC has to be co-terminus with the period of credit, reckoned from the date of shipment. AD banks shall not, however, approve trade credit exceeding USD 20 million per import transaction.

Reserve Bank of India vide A.P. (DIR Series) Circular No. 28 dated 11th September, 2012 has now decided to allow companies in the infrastructure sector to avail of trade credit up to a maximum period of five years for import of capital goods as classified by DGFT subject to the following conditions: - (i) the trade credit must be ab initio contracted for a period not less than fifteen months and should not be in the nature of short-term roll overs; and (ii) AD banks are not permitted to issue Letters of Credit/guarantees/Letter of Undertaking (LoU) /Letter of Comfort (LoC) in favour of overseas supplier, bank and financial institution for the extended period beyond three years. (iii). The all-in-cost ceilings of trade credit will be as under: Maturity period All-in-cost ceilings over 6 months LIBOR* Up to one year 350 basis points More than one year and up to three years More than three years and up to five years * for the respective currency of credit or applicable benchmark

The all-in-cost ceilings include arranger fee, upfront fee, management fee, handling/ processing charges, out of pocket and legal expenses, if any.