**Summary:**
This circular, RBI/2018-19/48 A.P. (DIR Series) Circular No. 9, issued by the Reserve Bank of India (RBI) on September 19, 2018, announces a liberalization of the External Commercial Borrowings (ECB) policy, particularly concerning ECBs for the manufacturing sector and Rupee Denominated Bonds (RDBs).
Specifically, the circular amends paragraphs 2.4.1 and 3.3.3 of Master Direction No. 5 dated January 1, 2016, on External Commercial Borrowings, Trade Credit, Borrowing and Lending in Foreign Currency.
Key changes include:
* **ECBs for Manufacturing Sector:** Eligible borrowers in the manufacturing sector are now permitted to raise ECBs up to USD 50 million (or its equivalent) with a minimum average maturity period of 1 year, reduced from the previous 3-year requirement.
* **RDB Underwriting and Market Making by Indian Banks:** Indian banks are now permitted to participate as arrangers, underwriters, market makers, and traders in RDBs issued overseas, subject to applicable prudential norms. The previous restriction limited bank holdings to a maximum of 5% of the issue size after six months when underwriting.
All other provisions of the existing ECB policy remain unchanged. The circular instructs AD Category-I banks to inform their constituents and customers of these changes. Master Direction No. 5 dated January 01, 2016, is being updated to reflect these amendments.
The directions are issued under sections 10(4) and 11(2) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to other applicable laws.
Ajay Kumar Misra, Chief General Manager-in-Charge, is the contact person at the Reserve Bank of India.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the country's monetary policy and banking system.
Mumbai, Maharashtra: The city where the Reserve Bank of India is located, as indicated by the address 'Mumbai 400 001'.
External Commercial Borrowings (ECB): A mechanism that allows Indian companies to raise money from foreign markets.
Rupee Denominated Bonds (RDB): Bonds issued overseas but denominated in Indian Rupees.
Master Direction No. 5 dated January 1, 2016: A comprehensive document issued by the Reserve Bank of India outlining regulations related to External Commercial Borrowings, Trade Credit, and Foreign Currency transactions.
Authorised Dealer (AD) Category-I Banks: Banks authorized by the Reserve Bank of India to deal in foreign exchange.
Foreign Exchange Management Act, 1999: An Act of the Parliament of India to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.
Ajay Kumar Misra: Chief General Manager-in-Charge at the Reserve Bank of India, who signed the circular.
RESERVE BANK OF INDIA
Mumbai - 400 001
RBI/2018-19/48
A.P. (DIR Series) Circular No.9 September 19, 2018
To
All Category-I Authorised Dealer Banks
Madam / Sir
External Commercial Borrowings (ECB) Policy - Liberalisation
Attention of Authorized Dealer Category-I (AD Category-I) banks is invited to paragraphs 2.4.1 and
3.3.3 of Master Direction No.5 dated January 1, 2016 on “External Commercial Borrowings, Trade
Credit, Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other than
Authorised Dealers”, as amended from time to time.
2. It has been decided, in consultation with the Government of India, to liberalise some aspects of
the ECB policy including policy on Rupee denominated bonds as indicated below:
(i) ECBs by companies in manufacturing sector: As per the extant norms, ECB up to USD 50 million
or its equivalent can be raised by eligible borrowers with minimum average maturity period of 3
years. It has been decided to allow eligible ECB borrowers who are into manufacturing sector to
raise ECB up to USD 50 million or its equivalent with minimum average maturity period of 1 year.
(ii) Underwriting and market making by Indian banks for Rupee denominated bonds (RDB)
issued overseas: Presently, Indian banks, subject to applicable prudential norms, can act as
arranger and underwriter for RDBs issued overseas and in case of underwriting an issue, their
holding cannot be more than 5 per cent of the issue size after 6 months of issue. It has now been
decided to permit Indian banks to participate as arrangers/underwriters/market makers/traders in
RDBs issued overseas subject to applicable prudential norms.
3. All other provisions of the ECB policy shall remain unchanged. AD Category - I banks should
bring the contents of this circular to the notice of their constituents and customers.
4. The aforesaid Master Direction No. 5 dated January 01, 2016 is being updated to reflect the
above changes.
5. The directions contained in this circular have been issued under section 10(4) and 11(2) of the
Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions /
approvals, if any, required under any other law.
Yours faithfully
Ajay Kumar Misra
Chief General Manager-in- Charge