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Reporting under New ECB Guidelines

September 18, 2020     by Shalini Chauhan

External Commercial Borrowings are commercial loans raised by eligible resident entities from recognised non-resident entities. The RBI regulates ECB by specifying parameters, such as eligible borrowers and lenders, permitted end use, minimum average maturity period, maximum all-in-cost ceiling, etc. For details, please visit

External Commercial Borrowings: Simple Guidelines well received by Corporate India

The Reserve Bank of India (RBI) in order to align the Foreign Exchange Mangement (Borrowing and Lending) Regulation, 2018 with erstwhile ECB Framework issued liberalised External Commercial Borrowings Framework (New ECB Guidelines) vide its circular dated January 16, 2019. These guidelines have amended various provisions and introduced the concept of Late Submission Fees (LSF) in delay of reporting under ECBs. Summarised below are the new reporting structure.

Reporting Requirement

As per the new guidelines, RBI has revamped the reporting requirements as follows:

Reporting Type Form/Return Purpose Reporting Timeline
Initial

Form ECB in duplicate to the designated AD Category I Bank

To obtain Loan Registration Number (LRN) and to report terms and conditions of the ECB raised by the eligible borrowers

No specific time- period has been prescribed under the guidelines. However, the AD Bank requires to submit the same within 7 days from the date of signing of loan agreement.

To report changes in ECB parameters

Within 7 days from the effective date of changes
Monthly Reporting Form ECB- 2

To report actual ECB transactions

Within 7 working days from the closure of month to which it relates*

*Changes, if any, in ECB parameters should also be incorporated in Form ECB 2 Return.

Consequences of Delay in Reporting

Any contravention under the erstwhile ECB framework invited penal action under provisions of the Foreign Exchange Management Act, 1999. But as per the new guidelines, any borrower, who is otherwise in compliance with ECB guidelines, can regularise the delay in reporting of drawdown of ECB proceeds before obtaining LRN or delay in submission of Form ECB 2 returns, by payment of late submission fees as detailed in the following matrix:

Sr. No. Type of Return/ Form Period of Delay Applicable LSF
1. Form ECB 2 Up to 30 calendar days from due date of submission INR 5,000
2. Form ECB 2/Form ECB Up to three years from due date of submission/date of drawdown INR 50,000 per year
3. Form ECB 2/Form ECB Beyond three years from due date of submission/date of drawdown INR 100,000 per year

 

However, it is pertinent to note that contraventions relating to filing / delayed filing of Form ECB and Form ECB 2 returns are treated separately. Non-payment of LSF will be treated as a contravention of reporting provisions and shall be subject to compounding or adjudication as per FEMA Act, 1999 or regulations/rules framed thereunder.

Introduction of Standard Operating Procedure (SOP) for entities contravening the reporting procedures For eight or more quarters

In order the curb the entities delaying in ECB’s reporting, the RBI has introduced a new concept of “untraceable entities” and specified the SOP to be followed by the designated AD bank in case the entities are contravening the reporting provisions of ECB for past eight or more quarters.

# Untraceable Entity

The ECB borrower is qualified as an untraceable entity if the entity or it’s auditor / director / promoter, do not respond to email/letters or phone for a period of not less than two quarters with documented communication/ reminders numbering 6 or more and it fulfills both of the following conditions:

  1. it is not found to be operative at the registered address of the company and
  2. entity has not submitted the statutory auditor’s certificate for last two years or more.

# Action to taken against Untraceable Entity

The followings actions are to be undertaken in respect of ‘untraceable entities’:

  1. File revised Form ECB, if required, and last Form ECB 2 return without certification from company with ‘UNTRACEABLE ENTITY’ written in bold on top. The outstanding amount will be treated as written-off from external debt liability of the country but may be retained by the lender in its books for recovery through judicial/ non-judicial means;

  2. No fresh ECB application by the entity should be examined/processed by the AD bank;

  3. Directorate of Enforcement should be informed whenever any entity is designated ‘UNTRACEABLE ENTITY’; and

  4. No inward remittance or debt servicing will be permitted under auto route.

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