News Alert
RBI has updated the External Commercial Borrowing (ECB) framework to expand eligible borrowers for infrastructure and green finance, increase the all-in cost cap, and streamline the automatic route approval process.
Expanded Eligible Borrower Categories
The Reserve Bank of India has released a revised Master Direction on External Commercial Borrowings, Trade Credits, and Structured Obligations, expanding the list of eligible borrowers under the ECB framework. Key additions include Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs) as eligible borrowers for ECBs used exclusively for infrastructure project financing, and SEBI-registered Category I and II AIFs investing in infrastructure or green sectors for ECBs up to USD 200 million per financial year.
For manufacturing companies, the revised framework permits ECBs for purposes of on-lending to Micro, Small, and Medium Enterprises (MSMEs) in the supply chain of the borrower, subject to end-use verification by the borrower and the AD bank. This new provision is intended to channel foreign capital into the MSME sector through larger anchor buyers who have better access to international capital markets and stronger foreign investor relationships.
Revised All-In Cost Caps and Green Finance Incentives
The all-in cost cap for ECBs under Track I (medium-term FCY ECB) has been raised from the benchmark rate plus 450 basis points to the benchmark rate plus 500 basis points, reflecting the higher cost of capital in global markets following the extended period of elevated interest rates. The all-in cost cap for INR-denominated ECBs (masala bonds) has also been revised to the benchmark INR rate plus 450 basis points, compared to the earlier cap of the benchmark rate plus 350 basis points.
A new category of "Green ECB" has been introduced for borrowings used exclusively for qualifying green projects as defined under the RBI's Green Finance Guidelines. Green ECBs benefit from a higher all-in cost cap (benchmark plus 600 basis points) and an expedited processing timeline at the AD bank level. Borrowers seeking to use the Green ECB route must obtain certification from an empanelled Environmental Verifier that the projects meet the eligibility criteria, and must submit annual impact reports to RBI confirming that the funds were used for certified green purposes.
Procedural Simplifications and Reporting Changes
The revised framework streamlines the automatic route approval process for ECBs up to USD 750 million (increased from USD 500 million). Applications above this limit, or those involving specific lender categories (such as sovereign wealth funds or central banks with reciprocal arrangements), continue to require RBI approval under the approval route. The AD bank's role has been expanded to include more comprehensive due diligence obligations, and the bank must certify that the borrower meets all eligibility criteria before the ECB is drawdown.
Reporting changes include a revised ECB return format (ECB 2) that captures additional information on the green credentials of the project, the currency composition of debt service obligations, and the hedging strategy employed by the borrower. The RBI has also introduced a mandatory pre-registration requirement for all new ECBs above USD 10 million, regardless of whether they are under the automatic or approval route, to improve the advance monitoring of India's external debt position.
This regulatory update is provided for general information purposes. It does not constitute legal or tax advice. Please consult a qualified advisor before taking any action based on this information.