External Commercial Borrowings (“ECB”) are basically loan from the permitted foreign source taken by the Indian businesses in accordance with the Foreign Exchange Management Act, 1999 (“FEMA”) and/or Master Direction as issued by the Reserve Bank of India (“RBI”) from time to time.

As the ECB are essentially in the nature of debt and increase financial liability not only on the entity concerned but also on the Indian economy, therefore ECB are subject to certain restrictions including end use, cost/interest factor, periodicity etc as provided in the FEMA and/or Master Directions. RBI monitors all instruments falling under the category of EBC and gives appropriate directions including relief to business from time to time keeping in mind the needs of Indian business and Indian economy.

In line with above, RBI vide its circular dated 07/04/2021 has provided further relaxation in the period of parking of unutilized ECB proceeds in terms deposits with Authorized Dealer Category-I (AD Category-I) banks.

Before such relaxation, ECB borrowers were allowed to park ECB proceeds drawn down on or before March 01, 2020 in term deposits with AD Category-I banks in India for a maximum period of 12 months cumulatively as per paragraph 4.2 of the of Master Direction No.5 dated March 26, 2019. However due to difficulties faced by borrowers in utilizing already drawn down ECB proceeds due to Covid-19 pandemic and other business-related restrictions, as a onetime measure, RBI has been decided to extend the period for parking of unutilised ECB proceeds drawn down on or before March 1, 2020 in term deposits with AD Category-I banks in India prospectively up to March 1, 2022 as reiterated in the paragraph 12 of the Governor’s Statement on Developmental and Regulatory Policies dated April 07, 2021.

Following is the brief of the said circular:

Circular No. RBI/2021-22/16, A.P. (DIR Series) Circular No. 01:

As per the above circular, unutilized ECB (External Commercial Borrowing) proceeds drawn down on or before March 01, 2020 can be parked in term deposits with AD Category-I banks in India prospectively for an additional period up to March 01, 2022. Earlier ECB borrowers are allowed to park ECB proceeds drawn down on or before March 01, 2020 in term deposits with AD Category-I banks in India for a maximum period of 12 months cumulatively as per paragraph 4.2 of the of Master Direction No.5 dated March 26, 2019. These term deposits should be kept in unencumbered position.

The directions contained in this circular have been issued under section 10(4) and 11(2) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/ approvals, if any, required under any other law.

CS Vikash Kumar Jha