Security for External Commercial Borrowings
This circular now permits banks, after obtaining a NOCfrom the existing lenders in India, to allow creation of charge on immovable assets, movable assets, financial securities and issue of corporate and/or personal guarantees in favour of overseas lender/security trustee, to secure the External Commercial Borrowings (ECB) raised /to be raised by the borrower, if: –
(i) The underlying ECB is in compliance with the ECB guidelines.
(ii) There exists a security clause in the Loan Agreement requiring the ECB borrower to create a charge, in favour of overseas lender/security trustee, on immovable assets/movable assets/financial securities and/ or issuance of corporate and/or personal guarantee.
(iii) T he security must be co-terminating with underlying ECB. Specific conditions in each case are as under: –
(a) Creation of Charge on immovable assets:
i. Such security will be subject to provisions contained in the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000.
ii. The permission is not be construed as a permission to acquire immovable asset (property) in India, by the overseas lender/security trustee.
iii. In the event of enforcement/invocation of the charge, the immovable asset/property will have to be sold only to a person resident in India and the sale proceeds will be repatriated to liquidate the outstanding ECB. (b) Creation of Charge on Movable Assets The claim of the lender, in case of enforcement / invocation of the charge, is restricted to the outstanding claim against the ECB. Encumbered movable assets can also be taken out of the country.
(c) Creation of Charge over Financial Securities
i. Pledge of shares of the borrowing company held by the promoters as well as in domestic associate companies of the borrower is permitted.
ii. Pledge on other financial securities, viz. bonds and debentures, Government Securities, Government Savings Certificates, deposit receipts of securities and units of the Unit Trust of India or of any mutual funds, standing in the name of ECB borrower/promoter is also be permitted.
iii. Security interest over all current and future loan assets and all current assets including cash and cash equivalents, including Rupee accounts of the borrower with banks in India, standing in the name of the borrower/promoter, can be used as security for ECB.
iv. Rupee accounts of the borrower/promoter can also be in the form of escrow arrangement or debt service reserve account.
iii. In case of invocation of pledge, transfer of financial securities will be in accordance with the FDI/FII policy including provisions relating to sectoral cap and pricing as contained in the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000.
(d) Issue of Corporate or Personal Guarantee
i. Board Resolution for the issue of corporate guarantee has to be obtained from the company issuing the guarantee.
ii. Specific requests from individuals to issue personal guarantee indicating details of the ECB must be obtained.
iii. This is subject to provisions contained in the Foreign Exchange Management (Guarantees) Regulations, 2000.
