External Commercial Borrowings, Trade Credits and
Description: External Commercial Borrowings, Trade Credits and Structured Obligations CA. Santhosha Kumar, Partner Ms SBA Associates, Bangalore Master Direction and Framework FED Master Direction No 52018-2019 Dated March 26,2019 supersedes FED Master
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slide1. External Commercial Borrowings,
Trade Credits
and Structured Obligations CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide2. Master Direction and Framework FED Master Direction No 5/2018-2019 Dated March 26,2019 supersedes FED Master Direction No. 5/2015-2016 dated Jan 1, 2016
New Master Direction only covers:
Part I
External Commercial Borrowings Framework
Part II
Trade Credits Framework
Part III
Structured obligations
Borrowing and Lending in Foreign currency by AD and other than AD are covered in FEM(Borrowing and Lending) Regulations 2018 dated 17th Dec 2018. CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide3. Regulations RBI Master Direction -No. 5/2018-19 dated 26th March 2019 (updated with Notifications AP DIR Circulars from time to time – updated as on 08th August,2019)
FAQs issued by RBI (updated as on 29 May 2019)
Foreign Exchange Management ( Borrowing or Lending in Foreign Exchange) Regulations, 2018, notified vide Notification No. FEMA 3R/2018-RB dated December 17,2018
Foreign Exchange Management ( Guarantees) Regulations, 2000, notified vide Notification No. FEMA 8/2000-RB dated May 3,2000 CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide4. Part I - External Commercial Borrowings CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide5. Part I-External Commercial Borrowings ECBs are commercial loans, raised by eligible resident entities from recognised non-resident entities should confirm to minimum maturity, end-use, all-in-cost ceiling in totality and not stand alone basis. Important terms used:
All in Cost
Approval Route/Approval Route
Authorized Dealer
Benchmark Rate
Designated AD Category I Bank
ECB Liability-Equity Ratio
FATF Compliant Country
Foreign Equity Holder
Person Resident in India Foreign Currency Convertible Bonds (FCCBs)
Foreign Currency Exchangeable Bonds (FCEBs)
IOSCO Compliant Country
Infrastructure Sector and Infrastructure Space Companies
Real Estate Activities
Special Economic Zone & Free Trade Warehousing Zone CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide6. Framework of ECB CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide7. Framework of ECB CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide8. Framework of ECB CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide9. ECB –Minimum Average Maturity Period Calculation of Average Maturity-An Illustration
ABC Ltd. Loan Amount = USD 2 million Average Maturity= 3.2851 **Calculated by = DAYS360 (firstdate, seconddate, 360) CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide10. Limit, ECB Ratio and Parking of ECB CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide11. Guarantees, FCCBs and FCEBs by Indian Banks, Indian financial institutions and NBFCs not Permitted CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide12. Procedure and Reporting of ECB CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide13. FCCBs and FCEBs CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide14. Delay in Reporting - LSF CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide15. Untraceable Entities CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide16. Untraceable Entities CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide17. Other Provisions CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide18. ECB Conversion to Equity CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide19. Security of ECB CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide20. Security of ECB CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide21. ECB to Start up CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide22. Trade Credits CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide23. Part II – Trade Credits CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide24. Trade Credits CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide25. Part III – Structured Obligations CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide26. Structured Obligations CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide27. Case Study 1 Foreign Bank Z Co.
(Existing 2star Hotel with project cost of Rs. 250crores) Outside India Proposed ECB – USD 40 million India CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide28. Case Study 2 A Co. X Co B Co. C Co.–
Service sector Training activities Whether C Co. avail INR ECB Loan from X Co.? 100% 100% 85% C Co. proposes to avail INR ECB loan from X Co. Outside India India CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide29. Case Study 3 D Co. T Co.–
ITES Sector T Co. wants to borrow from D Co. USD40
Million for general
corporate
purpose with the maturity period of 8 years with all-in cost 600 bps. Whether the above transaction is permissible? Outside India India CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide30. Case Study 4 A Ltd. T Co.–
ITES Sector Loan –USD50 million
Interest due USD 1 Million 80% T Co. is eligible Borrower as per the ECB Guidelines
A Ltd is Recognised lender as per ECB Guidelines
A Ltd wants to convert the loan along with interest into equity Whether Conversion is permissible?
If T Co. wants to write off the interest amount, is it permissible? CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide31. Case Study 5 Bank XYZ Private Limited (Eligible Startup) XYZ Private Limited (recognized as Startup by Central Government) wants to borrow USD 2 million from foreign bank. The Equity of ABC Limited is USD 0.25million
What is the ECB Liability and Equity ratio? Whether the above transaction is
permissible? CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide32. YOUR
QUESTIONS
PLEASE !!! Queries CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide33. Thank you!!! CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
Trade Credits
and Structured Obligations CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide2. Master Direction and Framework FED Master Direction No 5/2018-2019 Dated March 26,2019 supersedes FED Master Direction No. 5/2015-2016 dated Jan 1, 2016
New Master Direction only covers:
Part I
External Commercial Borrowings Framework
Part II
Trade Credits Framework
Part III
Structured obligations
Borrowing and Lending in Foreign currency by AD and other than AD are covered in FEM(Borrowing and Lending) Regulations 2018 dated 17th Dec 2018. CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide3. Regulations RBI Master Direction -No. 5/2018-19 dated 26th March 2019 (updated with Notifications AP DIR Circulars from time to time – updated as on 08th August,2019)
FAQs issued by RBI (updated as on 29 May 2019)
Foreign Exchange Management ( Borrowing or Lending in Foreign Exchange) Regulations, 2018, notified vide Notification No. FEMA 3R/2018-RB dated December 17,2018
Foreign Exchange Management ( Guarantees) Regulations, 2000, notified vide Notification No. FEMA 8/2000-RB dated May 3,2000 CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide4. Part I - External Commercial Borrowings CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide5. Part I-External Commercial Borrowings ECBs are commercial loans, raised by eligible resident entities from recognised non-resident entities should confirm to minimum maturity, end-use, all-in-cost ceiling in totality and not stand alone basis. Important terms used:
All in Cost
Approval Route/Approval Route
Authorized Dealer
Benchmark Rate
Designated AD Category I Bank
ECB Liability-Equity Ratio
FATF Compliant Country
Foreign Equity Holder
Person Resident in India Foreign Currency Convertible Bonds (FCCBs)
Foreign Currency Exchangeable Bonds (FCEBs)
IOSCO Compliant Country
Infrastructure Sector and Infrastructure Space Companies
Real Estate Activities
Special Economic Zone & Free Trade Warehousing Zone CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide6. Framework of ECB CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide7. Framework of ECB CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide8. Framework of ECB CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide9. ECB –Minimum Average Maturity Period Calculation of Average Maturity-An Illustration
ABC Ltd. Loan Amount = USD 2 million Average Maturity= 3.2851 **Calculated by = DAYS360 (firstdate, seconddate, 360) CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide10. Limit, ECB Ratio and Parking of ECB CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide11. Guarantees, FCCBs and FCEBs by Indian Banks, Indian financial institutions and NBFCs not Permitted CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide12. Procedure and Reporting of ECB CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide13. FCCBs and FCEBs CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide14. Delay in Reporting - LSF CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide15. Untraceable Entities CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide16. Untraceable Entities CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide17. Other Provisions CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide18. ECB Conversion to Equity CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide19. Security of ECB CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide20. Security of ECB CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide21. ECB to Start up CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide22. Trade Credits CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide23. Part II – Trade Credits CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide24. Trade Credits CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide25. Part III – Structured Obligations CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide26. Structured Obligations CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide27. Case Study 1 Foreign Bank Z Co.
(Existing 2star Hotel with project cost of Rs. 250crores) Outside India Proposed ECB – USD 40 million India CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide28. Case Study 2 A Co. X Co B Co. C Co.–
Service sector Training activities Whether C Co. avail INR ECB Loan from X Co.? 100% 100% 85% C Co. proposes to avail INR ECB loan from X Co. Outside India India CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide29. Case Study 3 D Co. T Co.–
ITES Sector T Co. wants to borrow from D Co. USD40
Million for general
corporate
purpose with the maturity period of 8 years with all-in cost 600 bps. Whether the above transaction is permissible? Outside India India CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide30. Case Study 4 A Ltd. T Co.–
ITES Sector Loan –USD50 million
Interest due USD 1 Million 80% T Co. is eligible Borrower as per the ECB Guidelines
A Ltd is Recognised lender as per ECB Guidelines
A Ltd wants to convert the loan along with interest into equity Whether Conversion is permissible?
If T Co. wants to write off the interest amount, is it permissible? CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide31. Case Study 5 Bank XYZ Private Limited (Eligible Startup) XYZ Private Limited (recognized as Startup by Central Government) wants to borrow USD 2 million from foreign bank. The Equity of ABC Limited is USD 0.25million
What is the ECB Liability and Equity ratio? Whether the above transaction is
permissible? CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide32. YOUR
QUESTIONS
PLEASE !!! Queries CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>
slide33. Thank you!!! CA. Santhosha Kumar, Partner M/s SBA Associates, Bangalore<br>