E-Biz Portal and External

Commercial Borrowings

T R RAMAMURTHY,

PRACTISING COMPANY SECRETARY,

RAMAMURTHY ASSOCIATES, DELHI

trramamurthy@hotmail.com

E biz portals – Challenge or Opportunity

• Use of technology has brought to the fore or to the doorstep of the entrepreneur information and content for use by them and is going to change the way the services are delivered to the average customer

• Technology may in due course of time help to sift the grain from the chaff amongst professionals with tools like Whatsapp, Facebook and Linkedin etc. Professional needs to go through a sea of information to be abreast of developments

• The average entrepreneur is more tech savvy than the previous generation and is likely to ask more questions

• What e-biz portals can do to cross border trade and investment

Challenges thrown by technology

• The overseas client or the cross border client can keep himself abreast and may have already visited the ebiz portals and acquired information before hand

• No point in holding back information or assuming the client has lesser information at his control – clients may be heterogenous yet one would expect them to ask relevant questions

• The prognosis for future – the business solutions have to turn client specific and pin pointed

• Clients are expected to ask questions on inter disciplinary approaches meaning that professional knowledge level expectations need to cover a vast area

E biz – wake up calls for all professionals

• In the days to come, beaten track solutions would get lost or would get laid

by the wayside

• Creativity in offering professional services would be the order of the day

• “Give greater value to the customer” would be guiding factor and those

doing so may score more

• Services have to be offered on wider canvass

E biz Portal of Government of India

• E biz portal of the Government of India is an initiative of the incumbent Government to make the reporting to the Government or submit applications to the various Government Departments to make the registrations easier and obtain responses and the initiative has the backing of the Central Government. State Governments like Delhi, Tamilnadu, Andhra Pradesh and Odisha have also joined in this initiative and the day is not far off when this portal would be the nodal page in web for reaching any Central or State Government Link

• Digital initiatives are an impersonal way of removing bureaucratic hurdles. The Income tax refunds for the assessment year 2016-17 have been issued in a large majority of the cases through National Payments Corporation

• Those who have not yet visited the ebiz portal may do visit

Consolidated circular with regard to filing of

returns to Reserve Bank of India

• The Reserve Bank of India has consolidated the instructions under Master direction No. 18/2015-16 dated the 1st January, 2016 covering reporting under various segments of FEMA and this direction is updated from time to time. Master directions have replaced master circulars which were updated once a year and published on website on1st of July, each year

• The practitioners are suggested to look to the above master direction and follow the hyperlinks given in the circular and get the latest form concerned for preparation of the appropriate return and also fill in the data for quick systemic response

E biz Portal

E biz Portal(contd.)

Reserve Bank of India page in E-biz portal

Reserve Bank of India page in Ebiz Portal

(contd.)

Login page in Secweb, Reserve Bank of India

Preamble to Foreign Exchange Management

Act, 1999

• This is a seminar for Cross Border Trade and Investment

• Preamble to the Act reads as “An Act 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

• It has been a regime of about 16 years in FEMA and it is a marked departure from the previous regime of FERA where the preamble read “An Act to regulate certain payments, dealings in foreign exchange and securities, transactions affecting foreign exchange and the import and export of currency, for the conservation of foreign exchange resources of the country and for the proper utilisation thereof in the interests of economic development of the country”

Broad Features of the new Act

• Foreign exchange freely available for all types of current account transactions, of

course, subject to certain restrictions

• A broad category of capital account transactions is permissible under automatic

route subject to compliance with the regulations issued by the Reserve Bank of

India and certain category of transactions are allowable on approval route

• Individuals are allowed to remit US$ 250,000 per financial year (April-March) for

any permitted current or capital account transaction or a combination of both

under liberalised remittance scheme

External Commercial Borrowings

•ECBs refer to commercial loans in the form of bank loans, securitized

instruments (floating rate notes, fixed rate bonds, non convertible, optionally or

partially convertible preference shares), buyers’ credit, suppliers credit, foreign

currency convertible bonds as well as foreign currency exchangable bonds

• ECBs are accessible under automatic and approval routes. If eligibility under

automatic route is not there, then resort should be for approval route

Three Tracks for ECB

• Track I – medium term foreign currency denominated ECB with minimum

average maturity of 3/5 years

• Track II – Long term foreign currency denominated ECB with minimum

average maturity of 10 years

• Track III – Indian Rupee denominated ECB with minimum average maturity

of 3/5 years – This has now come to be known as Masala Bonds –

Prominent issuers of Masala Bonds – International Finance Corporation,

HDFC, NTPC, IRFC, PFC etc.

How to find which is the route? Automatic or

Approval Route • The whole policy contained in the master circular has to be read together –

meaning thereby that right from application to the end use and

repayment/prepayment, you have to be in compliance for automatic route –

i.e. at no stage you will cross the contours of the policy

Automatic Route

• Parameters of ECB are under different tracks, Track I, Track II and Track III

• Eligible borrowers – Track I - Corporates in manufacturing and software

development sectors, shipping and airline companies, SIDBI, Units in SEZ,

Companies in Infrastructure sector, NBFC, Holding companies and CICs,

AFCs •Individuals, trusts and not for profit organisations are not eligible to

raise ECBs

Automatic route (contd.) – eligible borrowers

• Track II – Real Estate Investment Trusts, all entities in Track I and

Infrastructure Investment Trusts under SEBI

• Track III – NBFCs – Micro Finance Institutions, Not for profit companies

registered under section 8, Societies, Trusts and co-operatives, NGOs

engaged in Micro Finance Activities, Companies engaged in Miscellaneous

services like R&D, training (other than educational institutes), infrastructure

support companies, logistics companies and developers of SEZ and NMIZ

(National Manufacturing and Investment Zones)

Who could be recognised lenders?

• International banks, international capital markets, multilateral financial institutions, regional financial institutions, export credit agencies, equipment suppliers, foreign equity holders, Overseas Long term investors (Insurance/Pension/Soverign funds) Overseas Branches and subsidiaries of Indian Banks in Track I

• In Track II all entites under Track I covered but overseas branches / subsidiaries of Indian Banks not covered

• In Track III all entites under Track II covered – In case of NBFC MFIs, NGOs etc. ECB can be availed from overseas organisations and individuals (with certain remarks)

Maximum Permitted amount

• Corporate engaged in sectors other than hotel, hospitality and software and

miscellaneous service sectors – US$ 750 mn in a financial year

• Corporates engaged in the hotel etc. sectors US$ 200 mn. In a financial year

– ECBs should not be used for purchase of land

• NGOs in MF and MFIs can avail ECB upto US$ 10 mn in a financial year

• NBFC-AFCs and IFCs subject to maximum of US$ 200 mn – 75% of their

owned funds – hedge is also required

Maturity or Tenure

• ECBs upto US$ 50 mn. – average minimum maturity of 3 years

• ECBs above US$ 50 mn. Upto US$ 750 mn. – minimum average maturity of 5 years

• 5 years for eligible borrowers in the infrastructure sector /AFCs/CICs ahd holding companies

• As of now minimum average maturities are under three tracks – Track I as above, Track II with 10 years irrespective of amount and Track III having NBFCs, MFIs, Societies, trusts, co-operatives, R&D miscellaneous services companies and Developers of SEZ with maturities similar to Track I

All In cost ceilings

• All in cost ceiling includes rate of interest, fees other expenses in foreign exchange

except commitment fee, prepayment fee and fee payable in Indian Rupees. The

payment of TDS in Indian Rs. Is excluded

• Average maturity period 3 years and upto 5 years – the ceiling cost is 6 months

LIBOR plus 300 points and for maturity more than 5 years it is 6 months LIBOR

plus 450 points – In track II it is 500 basis points is the maximum spread

• Rate of penal interest should not be more than 2% of the all in cost

• In case of Track III – all in cost should be in line with Market conditions

End Uses

• Track I – Capital expenditure (import of capital goods including payment of services and local sourcing of capital goods), new project, modernisation/expansion, ODI (JV/WOS), Acquisition of shares of PSU under disinvestment, Refinancing of Existing trade credit raised for import of goods, general corporate purposes (subject to condition that ECB raised from direct/indirect equity holder or from a group co for minimum average maturity of five years)

• Track II – all purposes excluding real estate, capital market, domestic equity, on lending, purchase of land

End uses (contd.)

• Track III – NBFCs can use for on lending, hypothecated loans for capital

goods equipment, leasing and hire purchase of capital goods/equipment

• NBFC-MFIs, NGOs and not for profit companies can use for on lending to

SHGs or micro credit or bonafide finance activity including capacity building

subject hower that capital market, real estate, land, domestic equity

investment are not permitted

End uses (continued)

• For general corporate purposes – only from foreign equity holders by

companies in manufacturing, infrastructure, hotels, hospitality and software

with minimum average maturity of 5 years and the equity holders should

hold minimum of 25% equity directly –

• End uses not permitted – on lending, capital market, real estate, general

corporate purposes and acquisition of land

Security

• Security is left to the borrower to offer. However, creation of charge on the assets would require the permission from the AD Category I Bank – Bank would give permission only after LRN is obtained and the Loan agreement is signed – In the event of invocation of charge, the immovable property would be sold only to a person resident in India and the proceeds would be repatriated – AD banks can also approve creation of charge by way of pledge of shares

• Corporate guarantee or personal guarantee could also be executed with permission of the AD Category I Bank

Limits for ECB

• Upto USD 750 mn or equivalent for companies in infrastructure/manufacturing

sectors, NBFCs, IFCs, AFCs, holding companies and CICs

• Upto USD 200 mn. Or equivalent for companies in software services sector

• Upto USD 100 mn. Or equivalent for entities engaged in micro finance sector

• Upto USD 500 mn. For all remaining entities

• ECB can be raised in any freely convertible foreign currency

Obtaining Loan Registration Number

• The borrowers will have to apply in form 83 and obtain the LRN. Without LRN, the borrowing can not be drawn from overseas lender. Form 83 requires certification from Company Secretary

• After obtaining LRN, you can draw down the ECB

• There is a requirement to submit ECB-2 to report the actual receipt of ECB every month before end of seven working days in the next month till final repayment – ECB 2 also requires certification from Company Secretary

Approval route

• Applicants to submit application in form ECB which is considered by an

Empowered Committee set up Reserve Bank of India

• Wherever under automatic route any of the conditions are not satisfied or if

one apprehends that the compliance would be incomplete, then go for

approval route

• Once you are on approval route, disclose all that you need to disclose

Eligible borrowers under approval route

• Eligible borrowers – Exim Bank; Banks / Fis which participated in the Textile/Steel Restructuring package approved by Govt of India; NBFCs with minimum average maturity of 5 years for financing import of infrastructure equipment/leasing to infra projects; NBFC-AFCs/IFCs for borrowing beyond the 75% of their owned funds; housing finance companies, special purpose vehicles notified by RBI; Multi State Co-operative Societies, SEZ developers/NMIZ developers, Eligible borrowers under automatic route beyond limits, low cost affordable housing projects by developers/builders/HFCs/NHB/; Corporates under investigation; holding companies/CICs for infrastructure projects through SPVs

Trade Credit

• Trade credit refers to the credits extended by Overseas supplier, bank and

financial institution for maturity upto 5 years for imports into India

• Trade credit upto USD 20 mn. (per transaction) are under automatic route

with AD approving the same for import of non capital and capital goods.

Trade credits beyond USD 20 mn. Are approved by the Reserve Bank of

India

• The all in cost ceiling for trade credit is 350 basis points over LIBOR which

is all inclusive

What is LIBOR?

• •The London Inter Bank Offered Rate is the rate at which prominent banks

in London borrow funds from other banks.

• •Libor rates are available for ten currencies and for fifteen borrowing periods

ranging from overnight to one year.

• •For more details log on to www.bbalibor.com

Delegation of Powers to ADs

• Delegation of powers to ADs in respect of ECB’s

• Changes/modifications in the draw down schedule and in the repayment schedule

• Changes in the currency of borrowing

• Change of the AD Bank

• Change in the name of the Borrower company

• Change in the recognised lender and transfer of ECB due to re-organisaation

• Cancellation of LRN

* Change in the end use of proceeds

• Reduction in the amount of ECB and reduction in the all in cost, Refinancing of existing ECB

• Prepayment of LCB, Extension of matured but unpaid ECB

Approval route

• Eligible borrowers – Exim Bank; Banks / Fis which participated in the Textile/Steel

Restructuring package approved by Govt of India; NBFCs with minimum average

maturity of 5 years for financing import of infrastructure equipment/leasing to

infra projects; NBFC-AFCs/IFCs for borrowing beyond the 75% of their owned

funds; housing finance companies, special purpose vehicles notified by RBI; Multi

State Co-operative Societies, SEZ developers/NMIZ developers, Eligible borrowers

under automatic route beyond limits, low cost affordable housing projects by

developers/builders/HFCs/NHB/; Corporates under investigation; holding

companies/CICs for infrastructure projects through SPVs

Conversion of ECB into equity

• The conversion could be allowed in a sector under Automatic route for FDI and within sectoral cap. The valuation conditions will have to be complied – consent of lenders is necessary and also consent of Indian banks and sectoral cap is not to be breached – approval of FIPB is required where necessary

• Reporting of full/partial conversion using form ECB-2 – wherever full conversion takes place, further reporting in ECB-2 for subsequent months not necessary. In cases of partial conversion, reports after conversion would be for the outstanding amount only. For conversion in phases, reporting will also be in phases

Thank you

Mob. 9810331398/7834897128

Borrowing by resident individual

• Resident individuals permitted to borrow from close relatives upto a maximum of USD 250,000 or equivalent

• Minimum maturity is 1 year

• Loan is interest free

• Loan is received by inward remittance in free foreign exchange through normal banking channels or by debit to the NRE/FCNR account of the lender

• Close relatives as defined in the Companies Act, 1956 (now Act of 2013)