ECBs and their Advantages

Do you know what is External Commercial Borrowings (ECBs)? What are the advantages of External Commercial Borrowings? What has been India’s policy towards External Commercial Borrowings?

Image: External Commercial Borrowings (ECBs)

In a laymen parlance, External Commercial Borrowings (ECBs) are the loans availed by Indian entity from a non-resident lender. The Indian government permits ECBs as a source of finance for Indian corporates, PSUs, startups and others.

ECBs includes:

  • Commercial Bank loans;
  • Buyers’ credit & Suppliers’ credit;
  • Securitised Instruments such as Floating Rate Notes and Fixed Rate Bonds, etc
  • Credit from official export credit agencies; and
  • Commercial borrowings from multilateral financial institutions such as International Finance Corporation, Asian Development Banks, etc.

What are the advantages of ECBs?

It has several advantages including:

  1. ECBs provide opportunity to borrow large volume of funds;
  2. The funds are available for relatively long terms;
  3. Interest rates are also lower compared to domestic funds;
  4. ECBs are in the form of foreign currencies. Hence, they enable the corporate to have foreign currency to meet the import of machineries, equipments, etc

What has been Indian government ECB policy?

India has always promoted capital inflows as part of the development policy. Lack of domestic capital and deficit in the current a/c compelled the government historically to go after foreign capital.

In the post-reform period, ECBs have emerged as a major form of foreign capital like FDI and FII.

ECB policy was last liberalised by the RBI in November, 2015. For details visit, https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=10153&Mode=0

Recently, in G-20 summit in 2017, the group recognised India’s efforts to facilitate ECBs by startups to encourage innovation.

 

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