On 16 May, the Reserve Bank of India (RBI) issued a circular simplifying the procedure for external commercial borrowings (ECBs) from foreign equity holders. Under the extant procedure, ECBs from indirect equity holders and group companies and ECBs from direct foreign equity holders for general corporate purposes require prior RBI approval. Even a request to change the ECB lender requires RBI approval.
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In a step towards simplifying the above procedure, the RBI has delegated the powers to authorized dealer banks to approve under the automatic route in the following cases:
- Proposals for raising ECBs by companies in the manufacturing, infrastructure, hotel, hospital and software sectors from indirect equity holders and group companies (but note that proposals for raising ECBs by such companies for general corporate purposes, including corporate financing, are permitted only from direct equity holders);
- Proposals for raising ECBs by companies providing miscellaneous services – such as training activities (but not educational institutes), research and development activities and activities supporting the infrastructure sector – from direct/indirect equity holders and group companies (but note that companies in the trading business, or those providing logistics services, financial services and consultancy services, are not covered under the facility);
- Proposals involving change of lender when the ECB is from direct/indirect equity holders and group companies.
The changes came into effect on 16 May.
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The business law digest is compiled by Nishith Desai Associates (NDA). NDA is a research-based international law firm with offices in Mumbai, New Delhi, Bangalore, Singapore, Silicon Valley and Munich. It specializes in strategic legal, regulatory and tax advice coupled with industry expertise in an integrated manner.
