Tag: fema

Key Changes in External Commercial Borrowings (ECB) Framework under FEMA

by Pushkar Mer

The Reserve Bank of India (RBI) has notified the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026 (Notification No. FEMA 3(R)(5)/2026-RB, dated February 9, 2026, and published in the Official Gazette on February 16, 2026).

Key Highlights of the Amendments

1. Expanded Eligible Borrowers and Recognized Lenders
• Broader inclusion of entities (e.g., any person resident in India except individuals, subject to incorporation/registration under applicable laws).
• Enhanced recognition of foreign lenders to increase funding options.

2. Revised Borrowing Limits
• Eligible borrowers can now raise ECBs up to the higher of:
• USD 1 billion (outstanding ECBs), or
• Total outstanding borrowings (external + domestic) up to 300% of net worth (based on the last audited standalone balance sheet).

3. Removal of Cost of Borrowing Restrictions
• All-in-cost ceilings (previously benchmark + margin) have been removed.
• Pricing is now fully market-driven.
• For refinancing, the earlier requirement of lower cost/credit spread has also been eliminated.

4. Rationalized Minimum Average Maturity Period (MAMP)
• Uniform MAMP of 3 years for most ECBs.
• Manufacturing sector borrowers: MAMP between 1–3 years, subject to outstanding ECB ≤ USD 150 million.
• Longer maturity requirements (e.g., 5/7/10 years in older tracks) have been streamlined or removed.

5. Refinancing Provisions
• Refinancing (full or partial) of existing ECBs by fresh ECB is permitted.
• Safeguard: Refinancing must not result in failure to meet the MAMP requirement applicable to the original borrowing (or weighted outstanding maturity for multiple borrowings).
• This allows flexibility in rollovers while preventing undue shortening of the original maturity profile.

6. Strengthened End-Use Restrictions (New Regulation 3A)
• Detailed prohibitions/restrictions introduced to prevent misuse, including:
• Investment in chit funds, Nidhi companies.
• Real estate business (with limited exceptions, e.g., clarified for land/immovable property in permitted cases).
• Capital market transactions (except certain strategic corporate actions).
• On-lending restrictions in some cases.
• Repayment of certain restricted domestic loans or NPAs.
• End-uses now more tightly monitored for productive purposes.

7. Simplification of Reporting and Compliance
• Streamlined requirements (e.g., updated forms, event-based reporting via ECB-2).
• Enhanced clarity on security creation, conversion to non-debt instruments, corporate actions.

Extension of Time for delayed foreign remittance against import of goods or services

by Pushkar Mer

Reserve Bank of India (RBI) issues Master Circular to regulate import of goods and services in India. For delay remittance following guidelines of RBI Master circular should be complied

  • AD Category – I banks can consider granting extension of time for settlement of import dues up to a period of six months at a time (maximum up to the period of three years) irrespective of the invoice value for delays on account of disputes about quantity or quality or non-fulfilment of terms of contract; financial difficulties and cases where importer has filed suit against the seller. In cases where sector specific guidelines have been issued by Reserve Bank of India for extension of time (i.e. rough, cut and polished diamonds), the same will be applicable.
  •  While granting extension of time, AD Category –I banks must ensure that:

a.    The import transactions covered by the invoices are not under investigation by Directorate of Enforcement / Central Bureau of Investigation or other investigating agencies;

b.    While considering extension beyond one year from the date of remittance7 , the total outstanding of the importer does not exceed USD one million or 10 per cent of the average import remittances during the preceding two financial years, whichever is lower; and

c.     Where extension of time has been granted by the AD Category – I banks, the date up to which extension has been granted may be indicated in the ‘Remarks’ column.

(iii)                  Cases not covered by the above instructions / beyond the above limits, may be referred to the concerned Regional Office of Reserve Bank of India.

(iv)                 The above shall be reported in IDPMS as per message “Bill of Entry Extension” and the date up to which extension is granted will be indicated in “Extension Date” column.