 ECB refers to commercial loans in the form of bank loans, buyers’ credit and suppliers’ credit securitized instruments, availed from non-resident lender with minimum average maturity of 3 years.  External means non-Indian / foreign source, Commercial would mean engaged in commerce and Borrowing means acquire temporarily with a promise to return along with interest.  In comparison with India the interest rate is much lower than abroad.  Hence it is the single biggest incentive for companies raising money from overseas market.  ECBs act as an additional source of funds for companies to finance its investment needs.  Balance of payment and foreign exchange reserves position are two important drivers to decide the level of ECBs. RkP

Investor * ECB is for specific period, which can be as short as three years * Fixed Return, usually the rates of interest are fixed * The interest and the borrowed amount are repatriable * No owners risk as in case of Equity Investment Borrower * No dilution in ownership * Considerably large funds can be raised as per requirements of borrower * Usually only a fixed rate of interest is to be paid * Easy Availability of funds because ECB is more appealing to Investors * Lower rates of interest prevailing in the international financial markets * Longer maturity period * For financing expansion of existing capacity as well as for fresh investment

RkP  ECB can be raised for investment such as import of capital goods (as classified by DGFT in the Foreign Trade Policy),  New projects, modernization/expansion of existing production units] in real sector, industrial sector including small and medium enterprises (SME)  Infrastructure sector and is defined as (i) power, (ii) telecommunication, (iii) railways, (iv) roads including bridges, (v) sea port and airport, (vi) industrial parks  Specified service sectors, namely, hotel, hospital, software in India  Overseas Direct Investment in Joint Ventures (JV)/ Wholly Owned Subsidiaries (WOS)  The existing ECB may be refinanced by raising a fresh ECB subject to the condition that the fresh ECB is raised at a lower all-in-cost and the outstanding maturity of the original ECB is maintained.

RkP  For on-lending or investment in capital market or acquiring a company (or a part thereof) in India by a corporate [investment in Special Purpose Vehicles (SPVs), Money Market Mutual Funds (MMMFs), etc., are also considered as investment in capital markets].  For real estate sector,  For working capital, general corporate purpose and repayment of existing Rupee loans.  Borrowers are permitted to either keep ECB proceeds abroad or to remit these funds to India, pending utilization for permissible end- uses.  The rupee funds, however, will not be permitted to be used for investment in capital markets, real estate or for inter-corporate lending.

RkP Average Maturity Period All-in-cost Ceilings over 6 month LIBOR Three years and up to five years 350 basis points More than five years 500 basis points GUARANTEES  Issuance of guarantee, standby letter of credit, letter of undertaking or letter of comfort by banks, financial institutions and NBFCs relating to ECB is not permitted. SECURITY  Choice of security is left to the borrower but in case of creation of charges over immovable assets and financial securities such as shares is subjected to FEMA regulations.

RkP  Commercial Bank Loan in form of term loans from foreign banks  Buyer’s Credit  Suppliers Credit  Securitized instruments such as Syndicated loans  Financial Leases  Import Loans  Non-convertible, optionally convertible or partially convertible debentures  Investment by FIIs in dedicated debt funds

RkP  Credits extended for imports into India directly by the overseas supplier, bank and financial institution for maturity of less than three years * Suppliers’ credit relates to credit for imports in to India extended by the overseas supplier * Buyers’ credit refers to loans for payment of imports in to India arranged by the importer from a bank or financial institution outside India for maturity of less than three years.  Buyers’ credit and suppliers’ credit for three years and above come under the category of ECBs  The period of such Letters of credit / guarantees / LoU / LoC has to be co-terminus with the period of credit, reckoned from the date of shipment.

RkP Various Terms: Capital Goods & Non Capital Goods Long Term & Short Term FB & NFB Limits LoU/LoC/LUT LIBOR & Spread SWIFT Message Base Cost/Total Cost Reinstatement/Revaluation Qualifying & Non qualifying Asset Capitalisation Interest Accrual Borrowing Fee Amortisation

RkP Interest Cost Forex Gain/Loss-Unrealise & Realise Notional Gain/Loss Forward/Hedging Cost LoC/LUT commission Arrangement Fee Upfront Fee/Forex advisory charges With Holding Taxes(WHT)

RkP  Importer imports the goods either under DC / LC, DA / DP or Direct Documents.  Importer requests the Buyer’s Credit Consultant before the due date of the bill to avail buyers credit.  Consultant approaches overseas bank for indicative pricing, which is further quoted to Importer.  If pricing is acceptable to importer, overseas bank issue’s offer letter in the name of the Importer.  Importer approaches his existing bank to get letter of undertaking / comfort (LOU / LOC) issued in favour of overseas bank via swift(MT 799)  On receipt of LOU / LOC, Overseas Bank as per instruction provided in LOU, will either funds existing bank’s Nostro account or pays the supplier’s bank directly (using only MT202 payment mode).  Existing bank to make import bill payment by utilizing the amount credited (if the borrowing currency is different from the currency of Imports then a cross currency contract is utilized to effect the import payment)  On due date existing bank to recover the principal and Interest amount from the importer and remit the same to Overseas Bank on due date.

RkP

 interest and commitment charges on bank borrowings and other short-term and long-term borrowings;  Amortisation of discounts or premiums relating to borrowings;  Amortisation of ancillary costs incurred in connection with the arrangement of borrowings;  Finance charges in respect of assets acquired under finance leases or under other similar arrangements; and  Exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs.  Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset should be capitalised as part of the cost of that asset. The amount of borrowing costs eligible for capitalisation should be determined in accordance with this Standard. Other borrowing costs should be recognised as an expense in the period in which they are incurred.

RkP Interest Rates Ex Rate Date of Purchase AmountUSINDIADiff in Int15-Jun30-Jun Exchance Diff As-16Other Cost 5%10% Jun$100, , , , , ,000 30,000 Actual Reporting date MTM Date Borrowing Date(a) Amount(b) Ex Rate© INR value(d) Ex Rate('e)Inr Value(f) Gain/(Loss){d- f} Remarks , ,200, ,250, ,000Unrealised ,100, ,000Unrealised , ,200, ,350, ,000Realised