Easier security norms for ECBs to flow in capital

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Mumbai, Jul 11 : As the interest rate scenario heats up in the domestic market, the Reserve Bank of India will make it easier for corporates to raise monies through the external commercial borrowing route. At the moment, under the existing ECB guidelines, the choice of security to be provided to the overseas lender or supplier for securing ECB is left to the borrower. Now, authorised dealers (category I) can issue no objection certificates on behalf of the borrower, subject to the ECB guidelines.

“Proposals for creation of charge on immovable assets, financial securities and issue of corporate or personal guarantees, on behalf of the borrower in favour of the overseas lender, to secure the ECB under automatic / approval route, are considered by the Reserve Bank” said the notification.

It further adds, “As a measure of rationalisation of the existing procedures, it has been decided to allow authorised dealers category - I banks to convey ‘no objection’ under the Foreign Exchange Management Act (FEMA), 1999 for creation of charge on immovable assets, financial securities and issue of corporate or personal guarantees in favour of overseas lender / security trustee, to secure the ECB to be raised by the borrower.”

Before according ‘no objection’ the authorised dealers will have to ensure and satisfy themselves on several issues. Firstly, they would require being clear about the fact that the underlying ECB is strictly in compliance with existing guidelines. The banks will also have to ensure that there exists a security clause in the loan agreement requiring the borrower to create charge on immovable assets, financial securities, furnish corporate or personal guarantee. Then they will make sure that the loan agreement has been signed by both the lender and the borrower, and lastly ensure that the borrower has obtained Loan Registration Number (LRN) from the Reserve Bank.