The Reserve Bank of India (“RBI”) has issued the Master Direction – External Commercial Borrowings, Trade Credit, Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other than Authorised Dealers (“Master Directions”) with amendments made in the month of March 2018.
Key highlights of the changes to the Master Directions:
| Prior Position | Position after Amendment | Implication |
| 2.15 Refinancing of ECB:Refinancing of existing ECB with fresh ECB is permitted provided the fresh External Commercial Borrowing (“ECB”) is raised at a lower all-in-cost and residual maturity is not reduced. Indian banks are not permitted to participate in refinancing of existing ECB. | 2.15 Refinancing of ECB: Refinancing of existing ECB with fresh ECB is permitted provided the fresh ECB is raised at a lower all-in-cost and residual maturity is not reduced. Overseas branches/subsidiaries of Indian banks are permitted only to refinance ECBs of highly rated (AAA) corporates as well as Navratna and Maharatna PSUs, provided the outstanding maturity of the original borrowing is not reduced and all-in-cost of fresh ECB is lower than the existing ECB. Partial refinance of existing ECBs is also permitted subject to same conditions. | Prior to the amendment, Indian Banks were not allowed to participate in refinancing of existing External Commercial Borrowing. Post the present Amendment the Overseas branches and subsidiaries of Indian Banks are permitted to refinance of existing ECBs of Highly Rated Corporates, Navratna and Maharatna PSUs, where the outstanding maturity of the original borrowing is not reduced and all-in-cost of fresh ECB is lower than the existing ECB.
Partial refinance of existing ECBs has not been allowed on fulfilling the above mentioned conditions. |
| 5.5 Guarantee for Trade Credit:AD Category I banks are permitted to issue guarantee/ Letters of Undertaking /Letters of Comfort in favour of overseas supplier, bank or financial institution up to USD 20 million per import transaction for a maximum period up to one year in case of import of non-capital goods (except gold, palladium, platinum, rhodium, silver, etc). For import of capital goods, the period of guarantee/ Letters of Credit/ Letters of Undertaking by AD can be for a maximum period up to three years. The period is reckoned from the date of shipment and the guarantee period should be co-terminus with the period of credit. Further, issuance of guarantees will be subject to prudential guidelines issued by the RBI from time to time. | 5.5 Guarantee for Trade Credit: AD Category I banks are permitted to issue bank guarantees/ Letters of Undertaking /Letters of Comfort in favour of overseas supplier, bank or financial institution up to USD 20 million per import transaction for a maximum period up to one year in case of import of non-capital goods (except gold, palladium, platinum, rhodium, silver, etc). For import of capital goods, the period of such guarantees guarantee/ Letters of Credit/ Letters of Undertaking by AD can be for a maximum period up to three years. The period is reckoned from the date of shipment and the guarantee period should be co-terminus with the period of credit. Further, issuance of such guarantees will be subject to compliance with the provisions contained in Department of Banking Regulation Master Circular No. DBR.No.Dir. BC.11/13.03.00/2015-16 dated July 1, 2015 on “Guarantees and Co-acceptances”, as amended from time to time. | Prior to the Amendment, the AD category banks were permitted to issue guarantee/ Letters of Undertaking /Letters of Comfort in favour of overseas supplier, bank or financial institution in case of import of Non-Capital goods (except gold, palladium, platinum, rhodium, silver, etc).
Post the Amendment, the AD category banks are permitted to only issue guarantees in favour of overseas supplier, bank or financial institution in case of import of Non-Capital goods (except gold, palladium, platinum, rhodium, silver, etc).
Prior to the amendment, the issuance of guarantees was subject to prudential guidelines issued by the RBI from time to time. After the amendment, the issuance of guarantees is subject to compliance with the provisions contained in Department of Banking Regulation Master Circular No. DBR.No.Dir. BC.11/13.03.00/2015-16 dated July 1, 2015 on “Guarantees and Co-acceptances”, as amended from time to time. |
For further read, please click on the link below.
Source: Reserve Bank of India
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