External Commercial Borrowings

Gist of RBI circular dated 30th July, 2019 on the subject.

Attention of Authorized Dealer Category-I (AD Category-I) banks is invited to paragraphs 2.1.(v) and 2.1.(viii) of Master Direction No.5 dated March 26, 2019 on the above subject in terms of which, inter alia, ECB proceeds cannot be utilised for working capital purposes, general corporate purposes and repayment of Rupee loans except when the ECB is availed from foreign equity holder for a minimum average maturity period of 5 years. Further, on-lending for these activities out of ECB proceeds is also prohibited.

2. Based on the feedback from stakeholders and with a view to further liberalise the ECB framework, it has been decided, in consultation with the Government of India, to relax the end-use restrictions. Accordingly, eligible borrowers will now be permitted to raise ECBs for the following purposes from recognised lenders, except foreign branches/ overseas subsidiaries of Indian banks, subject to paragraph 2.2 of the direction ibid:

1. ECBs with a minimum average maturity period of 10 years for working capital purposes and general corporate purposes. Borrowing by NBFCs for the above maturity for on lending for the above purposes is also permitted.
2. ECBs with a minimum average maturity period of 7 years can be availed by eligible borrowers for repayment of Rupee loans availed domestically for capital expenditure as also by NBFCs for on-lending for the same purpose. For repayment of Rupee loans availed domestically for purposes other than capital expenditure and for on-lending by NBFCs for the same, the minimum average maturity period of the ECB is required to be 10 years.
3. It has been decided to permit eligible corporate borrowers to avail ECB for repayment of Rupee loans availed domestically for capital expenditure in manufacturing and infrastructure sector if classified as SMA-2 or NPA, under any one time settlement with lenders. Lender banks are also permitted to sell, through assignment, such loans to eligible ECB lenders, except foreign branches/ overseas subsidiaries of Indian banks, provided, the resultant external commercial borrowing complies with all-in-cost, minimum average maturity period and other relevant norms of the ECB framework.

3. The prescribed minimum average maturity provision, as above, for the aforesaid end-uses will have to be strictly complied with under all circumstances.

4. All other provisions of the ECB policy remain unchanged. AD Category - I banks should bring the contents of this circular to the notice of their constituents and customers.

5. The Master Direction No. 5 dated March 26, 2019 is being updated to reflect the above changes.

6. The directions contained in this circular have been issued under section 10(4) and 11(2) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.

Kisan Credit Card

As per RBI notification dated 4th February, 2019 Kisan Credit Card will now be extended to meeting working capital requirements in the animal husbandry and fisheries sector. There are guidelines to be followed, which are as under

1. Introduction

In the Budget 2018-19 the Union Government had announced their decision to extend the facilities of Kisan Credit Card (KCC) to Animal Husbandry farmers and Fisheries (AH & F) to help them meet their working capital requirements. In pursuance of the said budget announcement the matter has been examined, and in consultation with all stakeholders, it has been decided to extend the KCC facility for working capital requirement for activities related to Animal Husbandry and Fisheries.

2. Purpose:

The KCC facility will meet the short term credit requirements of rearing of animals, birds, fish, shrimp, other aquatic organisms, capture of fish.

3. Eligibility:

The criteria for eligible beneficiaries under KCC for Animal Husbandry and Fisheries will be as under:

3.1 Fishery

3.1.1 Inland Fisheries and Aquaculture

3.1.1.1 Fishers, Fish Farmers (individual & groups/ partners/ share croppers/ tenant farmers), Self Help Groups, Joint Liability Groups and women groups.

3.1.1.2 The beneficiaries must own or lease any of the fisheries related activities such as pond, tank, open water bodies, raceway, hatchery, rearing unit, possess necessary license for fish farming and fishing related activities, and any other State specific fisheries and allied activities.

3.1.2 Marine Fisheries

3.1.2.1 Beneficiaries listed at 2.1.1.1 above, who own or lease registered fishing vessel/boat, possess necessary fishing license/permission for fishing in estuary and sea, fish farming/mariculture activities in estuaries and open sea and any other State specific fisheries and allied activities.

3.2 Poultry and small ruminant

3.2.1 Farmers, poultry farmers either individual or joint borrower, Joint Liability Groups or Self Help Groups including tenant farmer of sheep/goats/pigs/poultry/birds/rabbit and having owned/rented/leased sheds.

3.3 Dairy

3.3.1 Farmers and Dairy farmers either individual or joint borrower, Joint Liability Groups or Self Help Groups including tenant farmers having owned /rented/leased sheds.

4. Scale of Finance

4.1 The scale of finance will be fixed by the District Level Technical Committee (DLTC) based on local cost worked out on the basis of per acre/per unit/per animal/per bird etc.

4.2 The working capital components in fisheries, under the scale of finance, may include recurring cost towards seed, feed, organic and inorganic fertilisers, lime/other soil conditioners, harvesting and marketing charges, fuel/electricity charges, labour, lease rent (if leased water area) etc. For capture fisheries, working capital may include the cost of fuel, ice, labouring charges, mooring/landing charges etc. may form part of the scale of finance.

4.3 The working capital components in Animal Husbandry, under the scale of finance, may include recurring cost towards feeding, veterinary aid, labour, water and electricity supply.

4.4 The maximum period for assessment of working capital requirement may be based on the cash flow statement or completion of one production cycle.

4.5 Fisheries and Animal Husbandry experts of the Govt. may be made members of the DLTC for giving technical inputs for assessing the cash credit requirement.

4.6 Progressive entrepreneurs of livestock/fisheries sector may also be included in the DLTC for providing field level inputs while assessing the working capital requirements.

5. General Guidelines

5.1 Drawing power: The drawing power will be worked on the basis of the latest valuation of stocks, receivables and/or cash flows as per terms of sanction.

5.2 Repayment: The loan will be in the nature of a revolving cash credit limit. Repayment will be fixed as per the cash flow/income generation pattern of the activity undertaken by the borrower.

5.3 Monitoring of end use: The account/smart card for the loan issued under the scheme is to be maintained/issued separately from the existing KCC loan to monitor the utilization limit. The monitoring of end use of funds will be in line with other loans (KCC on crop loans included) viz., field visits to the site of unit/project to be carried out by the branch officials for checking the progress of the unit. Banks will periodically review the facility and continue/withdraw/scale down the facility based on the performance of the borrower.

5.4 Prudential norms: The extant prudential norms on income recognition, asset classification and provisioning¹ on allied activities will apply.

5.5 Rate of Interest: The rate of interest will be as stipulated in DBR’s Master Direction – Reserve Bank of India (Interest Rate on Advances) Directions 2016.

5.6 All other guidelines laid down in Kisan Credit Card Scheme for short term crop loans will be applicable mutatis mutandis.

Copy of the RBI notification can be found here

Guidelines on Loan system

Gist of RBI notification dated 5th December, 2018 follows:

Interesting from the point of view of bringing some much needed discipline in the credit system in banks and to follow a standard operating procedure so that the discretionary powers are taken away from the individual banks/ bankers. This is going to be effective from 1st April, 2019. More than 40% to be allowed only under cash credit facility which has some form of security for which a charge is created with the Registrar of Companies. 

Guidelines on Loan System for Delivery of Bank Credit

With a view to enhance credit discipline among the larger borrowers enjoying working capital facility from the banking system, delivery of bank credit for such borrowers shall be as under:

1. Minimum level of ‘loan component’ and Effective date

In respect of borrowers having aggregate fund based working capital limit of ₹1500 million and above from the banking system, a minimum level of ‘loan component’ of 40 percent shall be effective from April 1, 2019. Accordingly, for such borrowers, the outstanding ‘loan component’ (Working Capital Loan) must be equal to at least 40 percent of the sanctioned fund based working capital limit, including ad hoc limits and TODs. Hence, for such borrowers, drawings up to 40 percent of the total fund based working capital limits shall only be allowed from the ‘loan component’. Drawings in excess of the minimum ‘loan component’ threshold may be allowed in the form of cash credit facility. Working examples for bifurcation of working capital limit are provided in Appendix I. The bifurcation of the working capital limit into loan and cash credit components shall be effected after excluding the export credit limits (pre-shipment and post-shipment) and bills limit for inland sales from the working capital limit. Investment by the bank in the commercial papers issued by the borrower shall form part of the loan component, provided the investment is sanctioned as part of the working capital limit.

2. Sharing of Working Capital Finance

The ground rules for sharing of cash credit and loan components may be laid down by the consortium, wherever formed, subject to guidelines on bifurcation as stated in paragraph 1 above. All lenders in the consortium shall be individually and jointly responsible to make sure that at the aggregate level, the ‘loan component’ meets the above mentioned requirements. Under Multiple Banking Arrangements (MBAs), each bank shall ensure adherence to these guidelines at individual bank level.

3. Amount and tenor of the loan

The amount and tenor of the loan component may be fixed by banks in consultation with the borrowers, subject to the tenor being not less than seven days. Banks may decide to split the loan component into WCLs with different maturity periods as per the needs of the borrowers.

4. Repayment/Renewal/Rollover of Loan Component

Banks/consortia/syndicates will have the discretion to stipulate repayment of the WCLs in instalments or by way of a "bullet" repayment, subject to IRAC norms. Banks may consider rollover of the WCLs at the request of the borrower, subject to compliance with the extant IRAC norms.

5. Risk weights for undrawn portion of cash credit limits

Effective from April 1, 2019, the undrawn portion of cash credit/ overdraft limits sanctioned to the aforesaid large borrowers, irrespective of whether unconditionally cancellable or not, shall attract a credit conversion factor of 20 percent.

6. The guidelines will be effective from April 1, 2019 covering both existing as well as new relationships. The 40 percent loan component will be revised to 60 percent, with effect from July 1, 2019.

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Appendix I

Working Example for Bifurcation of Working Capital Limits

(After adjustment as at paragraph 1 of the circular)

(₹ in mn)
S. No.	Sanctioned Aggregate Fund based Working Capital Limit	Current Outstanding	40% of column 2 is to be drawn as WCL
(1)	(2)	(3)	(4)
Scenario 1	₹2100	₹780	WCL - ₹780 CC - Nil
Scenario 2	₹2100	₹1700	WCL - ₹840 CC - ₹860
Scenario 3	₹2100	₹1600	WCL - ₹840 CC - ₹760
Scenario 4	₹2100	₹2000	WCL - ₹840 CC - ₹1160
Scenario 5	₹2100	₹2050	WCL - ₹840 CC - ₹1210