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” !!!