Prohibited Sectors in External Commercial Borrowings

  • What are ECBs?

ECBs are loans raised by Indian residents from foreign lenders in foreign currency. They are a popular source of funding for Indian businesses, as they offer access to cheaper and longer-term financing than domestic loans.

  • Who is eligible for ECBs?

Eligible borrowers for ECBs include:

* Corporates (registered under the Companies Act, 1956)
* Infrastructure Finance Companies (IFCs)
* Units in Special Economic Zones (SEZs)
  • What are the prohibited sectors for ECBs?

The Reserve Bank of India (RBI) has prohibited the use of ECB proceeds for the following sectors:

* Real estate activities
* Investment in capital market
* Equity investment
* Working capital
* General corporate purpose
* Repayment of existing Rupee loans
* Issuance of guarantee, standby letter of credit, letter of undertaking or letter of comfort by banks, Financial Institutions and Non-Banking Financial Companies (NBFCs) relating to ECB
  • MCQs on prohibited sectors in ECBs
  1. Which of the following sectors is prohibited for ECBs?
    • Real estate activities
    • Investment in capital market
    • Equity investment
    • All of the above

The answer is all of the above. ECB proceeds cannot be used for any of the sectors listed above.

  1. Which of the following borrowers is eligible for ECBs?
    • Corporates
    • Infrastructure Finance Companies (IFCs)
    • Units in Special Economic Zones (SEZs)
    • All of the above

The answer is all of the above. These are the only borrowers who are eligible for ECBs in India.

  1. What is the minimum average maturity for ECBs?
    • 3 years
    • 5 years
    • 7 years
    • It depends on the borrower

The answer is it depends on the borrower. The minimum average maturity for ECBs varies depending on the borrower’s credit rating and the purpose of the borrowing.

  • Conclusion

The prohibited sectors for ECBs are in place to protect the Indian economy from excessive foreign debt and to prevent speculative investment in real estate and the capital market. Borrowers who are considering raising ECBs should carefully review the prohibited sectors before making a decision.