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October 2012

A. P. (DIR Series) Circular No. 27 dated 11th September, 2012 External Commercial Borrowings (ECB) Policy – Bridge Finance for infrastructure sector

By Gaurang Gandhi, Chartered Accountant
Reading Time 2 mins
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Presently, Indian companies in the infrastructure sector can, under the Approval Route, import capital goods by availing of short term credit (including buyers’/suppliers’ credit) in the nature of ‘bridge finance’, subject to the following conditions:-

(i) Bridge finance must be replaced with a long term ECB.

(ii) ECB must comply with all the extant norms.

 (iii) Prior approval of RBI will have to be obtained for replacing the bridge finance with long term ECB.

This circular permits replacement of bridge finance (including buyers’/suppliers’ credit) availed of for import of capital goods with ECB under the Automatic Route subject to the following: –

 i. Buyers’/suppliers’ credit is refinanced through an ECB before the end of the maximum permissible period of trade credit.

 ii. Import of capital goods must be verified from the Bill of Entry by the Bank.

 iii. Buyers’/suppliers’ credit availed of is compliant with the extant guidelines on trade credit. iv. The goods that are imported, comply with the DGFT policy on imports. v. The proposed ECB must be compliant with all extant ECB guidelines. vi. Banks in India cannot provide any form of guarantees for the ECB. However, the borrower will still have to obtain prior approval of RBI (under Approval Route) for availing of bridge finance.

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