External Commercial Borrowings

ECB or External Commercial Borrowings is the debt shouldered by an eligible entity in India that is an extension of an entity outside India, for commercial purpose only. ECBs greatly aid Indian firms and organizations to raise funds. The investor base can be diversified by the borrower.

Companies become profitable through ECB. But the company could develop lax attitude as the funds are available at lower rates. And. The principal and interest have to be paid in foreign currency as raising funds through ECB is done in foreign currencies. Company can suffer heavy losses due to the hedging cost incurred by the company.

Eligible resident entities who raise ECBs from recognised non-resident entities should adhere to the criteria like minimum maturity period, maximum all-in-cost ceiling, permitted and non-permitted end-uses, etc. ECBs are governed by the Foreign Exchange Management Act (FEMA) Notification No. 3R & 8.

Funds through ECB can be used for expansion. And, can be used to bring fresh investments.

Foreign Currency Convertible Bonds (FCCBs) and Foreign Currency Exchangeable Bonds (FCEBs) are similar to ECBs. While the main purpose for the issuance of FCCBs is to raise capital, ECB applies to commercial loans that can include securitized instruments, bank loans, suppliers' credit, buyers' credit, and bonds that are availed from lenders that are not Indian residents. The minimum maturity of these instruments, on average, is three years.