RBI Revises Security Norms for ECBs

Published: 02nd January 2015 05:59 AM  |   Last Updated: 02nd January 2015 05:59 AM   |  A+A-

MUMBAI: The Reserve Bank of India on Thursday  revised and enlarged the norms regarding providing security before making an external commercial borrowing (ECB).

Under the new norms, banks may allow creation of charge on immovable assets, movable assets, financial securities, and issue of corporate and or personal guarantees in favour of overseas lender or the security trustee for raising the external commercial borrowings.

However, a borrower will have to ensure that there is a security clause in the loan agreement requiring ECB borrower to create a charge in favour of the overseas lender. It will also have to take no objection certificate from its local lenders in India, before it can make any such agreement.

Yet, the permission to create a security will not be construed as permission to acquire immovable asset held in India by the overseas lender. In the event the overseas lender has to enforce invocation of the charge, the asset or property will be permitted to be sold only to a local resident and only the cash thus generated be repatriated to pay off outstanding ECB.

Still, in the case of encumbered movable assets, if the overseas lender enforces the charge, moveable assets of the relevant value will be permitted to be taken out of the country. Promoters of a borrowing company can pledge their shares in the company as well as in associate companies.

The borrower can also pledge more stable instruments such as government bonds, government savings certificates, deposit receipts of securities of mutual funds with any mutual fund.

The borrower will also be permitted to use cash, rupee accounts, and security interest over all current and future loan assets as security for ECBs. In case of a personal or corporate guarantee, the borrower will have to give a copy of the board resolution for corporate guarantee and the names of officials who shall be accountable.

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