IndiaCorpLaw

Security for External Commercial Borrowings: Liberalised Regime

The Reserve Bank of India (RBI) has announced a series of measures to liberalise the regime for Indian borrowers to create security in favour of lenders in case of external commercial borrowings (ECBs). Now, borrowers are only required to obtain the ‘no-objection’ from the authorized dealers (AD) rather than to obtain the prior approval of the RBI for certain types of security (as was the practice until now).

The relevant Circular issued by the RBI yesterday notes:

“3. As a measure of rationalization of the existing procedures, it has been decided to allow AD Category – I banks to convey ‘no objection’ under the Foreign Exchange Management Act (FEMA), 1999 for creation of charge on immovable assets, financial securities and issue of corporate or personal guarantees in favour of overseas lender / security trustee, to secure the ECB to be raised by the borrower.

4. Before according ‘no objection’ under FEMA, 1999, AD Category – I banks may ensure and satisfy themselves that (i) the underlying ECB is strictly in compliance with the extant ECB guidelines, (ii) there exists a security clause in the Loan Agreement requiring the borrower to create charge on immovable assets / financial securities / furnish corporate or personal guarantee, (iii) the loan agreement has been signed by both the lender and the borrowers, and (iv) the borrower has obtained Loan Registratoin Number (LRN) from the Reserve Bank.”