• ecb-2

    EXTERNAL COMMERCIAL BORROWINGS (ECB)

    Forms of ECB

    • Loans including bank loans;
    • Securitized instruments (e.g. floating rate notes and fixed rate bonds, non-convertible, optionally convertible or partially convertible preference shares / debentures);
    • Buyers’ credit;
    • Suppliers’ credit;
    • Foreign Currency Convertible Bonds (FCCBs);
    • Financial Lease; and
    • Foreign Currency Exchangeable Bonds (FCEBs)

     

    We shall study about this article further, in detail, in our next post.

     

    Keep reading!!

  • external-commercial-borrowings

    EXTERNAL COMMERCIAL BORROWINGS (ECB)

    ECBs refer to commercial loans in the form of bank loans, securitized instruments (like floating rate notes and fixed rate bonds, non-convertible, optionally convertible or partially convertible preference shares), buyers’ credit or suppliers’ credit availed of from non-resident lenders with a minimum average maturity of 3 years.

    Recognised lenders under ECB could be :

    • international banks,
    • international capital markets,
    • multilateral financial institutions (such as IFC, ADB, CDC, etc.)
    • export credit agencies,
    • suppliers of equipments,
    • foreign collaborators and foreign equity holders

    ECB can also be availed under Automatic route and Approval route. The application of such borrowed funds and the sectors wherein they would be utilised, would depend on the type of route selected.

    Did you know that – “Banks in India cannot issue BGs / SBLCs / LOCs in favour of overseas lenders to cover their risk in an ECB transaction” !!!

  • suppliers-credit

    SUPPLIER’S CREDIT

    Supplier’s Credit is a financing arrangement under which an exporter or overseas bank extends credit to the importer for his imports. There would be an L/c issued by the importer’s bank, and a specific bank with whom a prior arrangement has been made, undertakes to pay to the supplier on presentation of L/c compliant terms. The exporter gets the payment at sight basis and importer needs to repay to overseas bank only at the end of the Usance period.

    In India, supplier’s credits for imports up to USD 20 million per import transaction is permissible under the current Foreign Trade Policy of the DGFT with a maturity period up to one year (from the date of shipment) for current a/c imports and upto 3 years for capital goods imported into India.

    Did you know that – “Supplier’s Credit is only possible when there is an L/c involved in an import transaction. Hence, unlike Buyer’s Credit, for DA transactions Supplier’s Credit cannot be availed”!!!

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    BUYER’S CREDIT

    Buyer’s credit is short term credit availed by an importer (buyer) from overseas lenders such as banks and other financial institutions for the goods they are importing. The overseas banks usually lend to the importer based on the letter of comfort (similar to a bank guarantee) issued by the importer’s bank. For this service the importer’s bank or the buyer’s credit consultant charges a fee called an arrangement fee.

    buyers-credit-2

    In India, buyer’s credits for imports up to USD 20 million per import transaction is permissible under the current Foreign Trade Policy of the DGFT with a maturity period up to one year (from the date of shipment) for current a/c imports and upto 3 years for capital goods imported into India.

    Did you know that – “Buyer’s credit in India is only permissible if the goods have entered the country. Hence Buyer’s Credit cannot be availed in a Merchanting trade transaction”!!!

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