With a view to further liberalising ECB approvals, the Government has operationalised the automatic route for fresh ECB approvals upto USD 50 million and for all refinancing of existing ECBs with effect from September 1, 2000.
Accordingly, under the automatic route arrangement, any legal entity, registered under the Companies Act, Societies Registration Act, Co-operative Societies Act, including proprietorship/partnership concerns, would be eligible to enter into loan agreements with overseas lender(s) for raising fresh ECB with average maturity of not less than three years for an amount upto USD 50 million and for refinancing an existing ECB provided it is in compliance with both the ECB guidelines framed by the Ministry of Finance, Government of India, and the regulations/directions issued by the Reserve Bank. Corporates would not be required to obtain prior approval for raising ECB upto USD 50 million and for refinancing of an existing ECB from the Ministry of Finance / Reserve Bank.
The corporate should ensure that they raise ECB from an internationally acceptable and/or recognised lender, such as, export credit agencies, suppliers of equipments, foreign collaborators, foreign equity holders, international capital markets, reputed international banks and financial institutions, etc. Further, the loan should be organised through a reputed merchant banker registered with the regulatory authorities of the host countries as may be notified from time to time by the Government of India. The lenders should be recognised and registered in the host countries for the purpose of extending international finance.
The corporate should submit through an authorised dealer of its choice, three copies of the loan agreement signed along with the lender to the concerned Regional Office of the Reserve Bank. The Regional Office of the Reserve Bank would acknowledge receipt of the copies of the agreement and would allot a loan identification number to such an agreement. The primary responsibility to ensure that ECBs raised are in conformity with the ECB guidelines and the Reserve Bank regulations/directions would be that of the concerned corporate. If, however, at a later stage, any violation is found, appropriate action would be taken by the Reserve Bank under the Foreign Exchange Management Act, 1999.
Corporates would also be permitted to make necessary draw-downs under the automatic route without prior permission from the Reserve Bank. It should file quarterly returns in a prescribed format through the authorised dealer. The withholding tax exemption would continue to be granted by the Ministry of Finance (Department of Revenue/Department of Economic Affairs), Government of India.
Authorised dealers, should continue to forward all applications to the Reserve Bank of India, to obtain prior permission for prepayment of outstanding ECBs. Opening of foreign currency account for temporarily parking ECB proceeds pending utilisation, would require prior approval of the concerned regional office of the Reserve Bank.