RBI spells out rules for start-ups to raise ECBs

Annual borrowing capped at $3 mn

To support financing for start-ups, the Reserve Bank of India (RBI) on Thursday issued rules permitting these to raise external commercial borrowings (ECBs).

In a statement, RBI said the borrowing per start-up was capped at $3 million per financial year. It could be either in rupees or a convertible foreign currency or a combination of both.

The money could be used for any expenditure of the borrower’s business.

The statement also said the funds so raised would have a three-year maturity and could be raised through loans as well as convertible and non-convertible debentures.

RBI said, “Startups can tap lenders and investors only from countries that are members of the Financial Action Task Force.”

If the funds were in rupees, the non-resident lender would provide it through swaps or outright sale through domestic banks.

RBI also advised start-ups raising money through ECB to have a risk-management policy as these would be exposed to currency risks because of exchange-rate movements.