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Modified commercial borrowings

The Reserve Bank of India (RBI) has, via its notification dated August 7 2007, issued a circular amending the policy regulating external commercial borrowings (ECB). The salient features are as follows.

Borrowings over $20 million

The circular stipulates that an eligible Indian borrower is permitted to borrow more than $20 million every financial year under the ECB policy only for foreign currency expenditure which is to be applied for permissible end-uses of ECB. These funds would have to be parked overseas and cannot be remitted to India. This stipulation is applicable to both the Automatic as well as the Approval Route of the RBI under its ECB policy.

ECBs up to $20 million

As regards ECB's up to $20 million a financial year, the Automatic Route can be used if the ECB funds are utilized for foreign currency expenditure to be applied towards permissible end-uses. These ECB funds cannot be remitted to India.

If the ECB funds were to be utilized for Indian Rupee expenditure, prior approval from the Reserve Bank of India under the Approval Route is needed. Further, the ECB funds for Indian Rupee expenditure must be parked overseas until actually required in India.

The above amendments will not apply to eligible Indian borrowers who have already entered into loan agreements and have obtained a loan registration number from the RBI. Borrowers who have taken verifiable and effective steps and entered into loan agreements for ECB under previous notifications, but not obtained a loan registration number from RBI, may apply to the RBI.

Shardul Thacker

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