Tuesday, July 16, 2013

Guidelines for ECB for structured obligations

The Reserve Bank of India (RBI) has issued guidelines for ECBs for structured obligations. The details are as under:-


  • As per the extant guidelines, credit enhancement is permitted to be provided by multilateral / regional financial institutions, Government owned development financial institutions, direct/indirect foreign equity  holder(s) under the automatic route for domestic debt raised through issue of capital market instruments.

  • The Reserve Bank of India (RBI) has decided that credit enhancement can be provided by eligible non-resident entities to the domestic debt raised through issue of INR bonds/ debentures by all borrowers eligible to raise ECB under the automatic route.
  • The minimum average maturity of the underlying debt instruments has been reduced from seven years to three years. Prepayment and call/put options, however, would not be permissible for such capital market instruments up to an average maturity period of 3 years.
  • On invocation of such credit enhancement, if the guarantor meets the liability and if the same is permissible to be repaid in foreign currency to the eligible non-resident entity, the all-in-cost ceilings, as applicable to the relevant maturity period of the Trade Credit / ECBs as per extant guidelines, would apply to the novated loan.

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