Reserve Bank of India (RBI) has fine-tuned the norms of security to be provided by the borrower while accessing external commercial borrowings (ECBs).
It has allowed borrowers to access ECBs against charge on immovable assets, movable assets, financial securities and issue of corporate and / or personal guarantees in favour of overseas lender / security trustee, subject to satisfying other conditions.
Presently, the choice of security to be provided to the overseas lender / supplier for securing ECB is left to the borrower.
The new norms expands the options of securities and consolidates various provisions related to creation of charge over securities for ECB at one place.
For immovable assets, the security shall be subject to provisions in the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000 and the permission to call the security should not be construed as a permission to acquire immovable asset in India, by the overseas lender / security trustee, RBI said.
In the event of enforcement of the charge, the immovable asset will have to be sold only to a person resident in India and the sale proceeds shall be repatriated to liquidate the outstanding ECB.
For movable assets, in the case of enforcement of the claim of the lender, whether the lender takes over the movable asset or otherwise, will be restricted to the outstanding claim against the ECB. Encumbered movable assets may also be taken out of the country, it said.
Moreover, in the case of financial assets, pledge of shares of the borrowing company held by the promoters as well as in domestic associate companies of the borrower will be permitted. Pledge on other financial securities, viz. bonds and debentures, G-Secs, government savings certificates, deposit receipts of securities and units of UTI or any mutual funds, standing in the name of ECB borrower/promoter, will also be permitted.
RBI said, in addition, security interest over all current and future loan assets and all current assets including cash and cash equivalents, including Rupee accounts of the borrower in India, standing in the name of the borrower/promoter, can be used as security for ECB. The Rupee accounts of the borrower/promoter can also be in the form of escrow arrangement or debt service reserve account.
In the case of invocation of pledge, transfer of financial securities shall be in accordance with the extant FDI/FII policy including provisions relating to sectoral cap and pricing as applicable read with the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000.
