ECB (EXTERNAL COMMERCIAL BORROWING)
Leveraging on our affluent industry proficiency, we provide External Commercial Borrowing Service. These services are accomplished employing the advanced techniques. In addition, our provided service is rendered in varied terms and forms that meet on customer’s demand. Moreover, we render this service at nominal costs.
We can help you with External Commercial Borrowing funding. We can organize debt fund in Foreign Currencies / Indian Rupees. We can arrange debt fund at astonishingly competitive rates. We adhere to the guidelines of the ECB. You can depend on us for arrangement of funds and clearance through RBI. We care about financial expansion. ECB includes bank loans, buyer’s credit, supplier’s credit, fixed rate bonds, floating rate bonds, etc.
External Commercial Borrowings can be organized for any project, which is for more than property market value USD 3M (21CR) and the company ratings are better than BBB+. ECBs help to keep the interest rates low since the borrowings are in foreign currency. However, for a domestic company, which is not in export, the hedging becomes compulsory due to foreign exchange risk.
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An external commercial borrowing (ECB) is an instrument used in India to facilitate Indian companies to raise money outside the country in foreign currency. The government of India permits Indian corporate to raise money via ECB for expansion of existing capacity as well as for fresh investments.
ECB can be availed by either automatic route or by approval route. Under automatic route, the government has permitted some eligibility norms with respect to industry, amounts, end-use etc. If a company passes all the prescribed norms, it can raise money without any prior approval.
For specific pre-specified sectors, the borrowers have to take explicit permission of the government/The Reserve bank of India (RBI) before borrowing through ECB.
India has always promoted capital inflows as a part of the development policy. Lack of domestic capital and deficit in the current account compelled the government historically to go after foreign capital. In simple terms, forein capital is money obtained from foreign countries to make investment domestically.
Foreign capital is not homogenous as there are different types of foreign capital. The major category is foreign investment including FDI (Foreign Direct Investment) and FPI (Foreign Portfolio Investment). Similarly, there are other types of foreign capital like trade credit, NRI Deposits and the most important one for India – the External Commercial Borrowings (ECBs).
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What is External Commercial Borrowings?
ECB is basically a loan availed by an Indian entity from a nonresident lender. Most of these loans are provided by foreign commercial banks and other institutions. It is a loan availed of from non-resident lenders with a minimum average maturity of 3 years.
The significance of ECBs their size in India’s balance of payment account. In the post reform period, ECBs have emerged a major form of foreign capital like FDI and FII.
During several years, contribution of ECBs was between 20 to 35 percent of the total capital flows into the country. Large number of Indian corporate and PSUs have used the ECBs as sources of investment.
Bulk of the overseas loans or ECBs into the country are obtained by private sector corporate. For the corporate, ECB is a dependable and easy to obtain fund and helps them to make business/investment expansion.
External Commercial Borrowings (ECBs) includes commercial bank loans, buyers’ credit, suppliers’ credit, securitized instruments such as Floating Rate Notes and Fixed Rate Bonds etc., credit from official export credit agencies and commercial borrowings from Multilateral Financial Institutions. ECBs are being permitted by the Government as a source of finance for Indian Corporate for expansion of existing capacity as well as for fresh investment. Following are the advantages of ECBs.
BENEFITS OF ECB
- The cost of funds is usually cheaper from external sources if borrowed from economies with a lower rate of interest. Indian companies can usually borrow at lower rates from the U.S. and the Euro zone as interest rates are lower there compared to the home country, India.
- Availability of larger market can help companies satisfy larger requirements from global players in a better manner as compared to what can be achieved domestically.
- ECB is just a form of a loan and may not be of equity nature or convertible to equity. Hence, it does not dilute stake in the company and can be done without giving away control because debtors do not enjoy voting rights.
- The borrower can diversify the investor base.
- It provides access to international markets for the borrowers and gives good exposure to opportunities globally.
- The economy also enjoys benefits, as the government can direct inflows into the sector, have potential to grow. For example, the government may allow a higher percentage of ECB funding in case of infrastructure and SME sector. This helps in an overall development of the country.
- Avenues of lower cost funds can improve the profitability of the companies and can aid economic growth.
ECB is a very attractive option for companies due to the advantages mentioned above.