Process of Obtaining External Commercial Borrowing

Introduction:

External Commercial Borrowings helps Indian corporations and companies by raising funds in foreign currencies from Various Overseas Lenders. These can include various instruments like bank loans from foreign banks, credit of various sources and various Financial Institutions and these funds are raised via two different routes namely Approval Route or Automatic Route. The RBI creates certain eligibility regulations by which availing the financial recommendations by which Automatic Route can be used to obtain the financial requirements. These are mainly industrial & commercial type. This is mostly beneficial for firms requiring financial help and for this they need to follow certain criteria, thresholds & guidelines set by RBI.

Process:

Automatic Route:

1. The first set of documents includes External Commercial Borrowings Form, Loan agreement, Average Maturity, repayment, and interest payment schedule & authority letter.
2. All documents need to be stamped and signed by a CA/CS of borrowing company then to be submitted to bank.
3. The documents need to submit to RBI and for that scrutiny of documents need to be done by all the departments. After approval it can then be submitted to RBI.
4. After this process the LRN is issued by RBI within few days thereafter which the lending process can take place.

Approval Route:

1. The first set of documents includes ECB Form, Loan agreement, Average Maturity, repayment, and interest payment schedule, covering letter & authority letter.
2. All documents need to be stamped and signed by a CA/CS of borrowing company then to be submitted to bank.
3. The documents need to submit to RBI and for that scrutiny of documents need to be done by all the departments. After approval it can then be submitted to RBI.
4. After this process the LRN is issued by RBI within few days thereafter which the lending process can take place.

Benefits:

• Most Indian businesses can take advantage various low prevailing interest rates which is prevalent in European Belt, USA, Japan & other commonwealth countries.
• Various Huge projects requiring foreign currency or investment provides an efficient route to borrow or lend large sums of money in foreign currency for improving efficiency and strength of the project.
• Via ECB the borrowers can access global lenders and exposure to new clients and new personnel who might invest in the project. This also helps in ensuring that interests are not conflicted and there is no loss of power.

Prepayments:

Prepayment of up to 500 million USD is allowed via both routes for after approval by Banks without approval of RBI. But exceeding the amount requires RBI Approval.