External Commercial Borrowing refers to an instrument that facilitates Indian companies or big corporations to raise funds in the foreign market. ECBs are often described as commercial loans used by eligible entities from recognised non-resident entities. However, External Commercial Borrowing needs to adhere to some criteria like minimum maturity period, maximum all-in-cost ceiling, non-permitted end uses, and many more. The activities of External Commercial Borrowing are monitored and governed by the Foreign Exchange Management Act (FEMA). FEMA provides a regulatory framework that facilitates the corporation or companies for foreign investment. External Commercial Borrowing is used to bring fresh foreign currencies into India. Apart from this, the raising of funds from outside India in foreign currencies can be availed through the automatic or approval route, depending on the sector types and sensitivity.
In extended form, Indian corporations or big companies are permitted by the Government of India to raise funds using ECB instruments from recognised non-resident entities. The major advantage of ECBs is, that they help in expanding the company's growth as well as capacity. Delving into the article will help you in better understanding of External Commercial Borrowing.
External Commercial Borrowing is used to raise funds in foreign currencies from outside India through the approval or automatic route. However, for raising any funds outside India, the government has created certain regulations and eligibility criteria under the automatic route. These regulations represent the borrowed amount, end-use of funds, etc. So, a company seeking to avail finance through External Commercial Borrowing(ECB), will have to meet the minimum eligibility criteria without the need for prior approval or consent of the government.
On the other hand, availing funds through the approval route requires the prior approval or consent of the government including the RBI. The company wishing for ECBs needs to meet the formal guidelines and circulars issued by the Reserve Bank of India concerning norms for borrowing.
ECB offers a wider pool of capital from a variety of funding sources, which also lowers the cost of borrowing. Let’s evaluate the benefits of the ECB regarding finance.
External Commercial Borrowing(ECB) shares a helpful hand in the expansion of companies by facilitating them with lower rates funds. It increases the potential growth of the companies by exposing them to worldwide opportunities. So, if you are also looking to meet the company's larger requirement, consider ECB for raising funds. But before, it is necessary to understand the ECB framework and how to deal with the ECB effectively. So, to mitigate your potential problem, we at Skyquest provide complete details and proper External Commercial Borrowing(ECB) Advisory Services . Our highly experienced team will help you understand the basics of ECB as well as help in the complete process of raising funds through ECB.