Firms can use ECB funds to import expertise, services

The Reserve Bank of India (RBI) on Wednesday allowed companies to use funds raised through external commercial borrowings (ECBs) for importing technical expertise and services and paying licence fees in the manufacturing and infrastructure sector. "The import of services, technical know-how and payment of licence fees would be considered part of capital goods imports," RBI told banks.

The central bank, however, set some conditions---the service provider and the borrowing company must have a specific pact. Also, the borrower should certify the original invoice by the service provider is in line with the payment schedule in the agreement. Importers have to give a declaration that the entire expenditure on the import of services would be capitalised and form part of the project cost.

Banks had to ensure the transactions were genuine, RBI said.

The central bank also allowed non-resident entities such as multilateral institutions to provide credit enhancement for domestic debt raised through rupee bonds/debentures by those eligible to raise ECBs under the automatic route.

It also reduced the minimum average maturity of such underlying debt instruments from seven to three years.