RBI eases ECB norms further

The Reserve Bank of India (RBI) has further eased the external commercial borrowing (ECB) norms for banks to issue ‘no objection’ under the Foreign Exchange Management Act (Fema), 1999.

Under the relaxed norms, ‘no objection’ by banks can be extended for issue of corporate guarantee in favour of the overseas lessee and for operating lease for import of aircraft, helicopters and engines.

The RBI, however has clarified that the ‘no objection’ is issued only under the provisions of Fema, 1999 and should not be construed as an approval by any other statutory authority.

Further, the ‘no objection’ should not be construed as regularising or validating any irregularities, contravention or other lapses, if any, under the provisions of Fema or any other laws or regulations. Consequently, the amendment to the Fema will be done with immediate effect.

So far, banks were allowed to extend ‘no objection’ to companies and entities for creation of charge on immovable assets, financial securities and issue of corporate or personal guarantees in favour of overseas lenders, to secure the ECB to be raised by the borrower. This relaxation was made in 2008.

Prior to that, the rules on ECBs were relaxed for permitting banks to allow payment of lease rentals, opening of letters of credit towards security deposit, etc in respect of import of aircraft/aircraft engine/helicopter on operating lease basis.

The ‘no objection’ to the Indian importer for issue of corporate guarantee may be conveyed after obtaining board resolution for issue of corporate guarantee from the company issuing such guarantees and after specifying names of the officials authorised to execute such guarantees on behalf of the firm.