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Reserve Bank of India ‘RBI’ on 27th October, 2016, permits Startup enterprises to access foreign currency loans up to $3 million a year under the External Commercial Borrowings ‘ECB’ route. External Commercial Borrowings can be accessed via the automatic route and approval route. Prior to this change, all External Commercial Borrowings required RBI approval.
Start-ups can now raise up to $3 million either in rupees or in any convertible foreign currency or both, through banks, export credit agencies, suppliers of equipment and equity holders, as well as the international capital markets.
The RBI has also relaxed the rules under the approval process. Few important points to be noted are here under:
- The permission allows companies to use the External Commercial Borrowings route freely but they have to submit approval plans to RBI only when borrowings are above a certain threshold limit.
- The Start-ups needs to be recognized as a Start-up by the Central Government as on date of raising ECB.
- Minimum maturity period will be 3 years.
- The recognized lender/investor in the External Commercial Borrowings should be a resident of a country which is either a member of the Financial Action Task Force or a member of a Financial Action Task Force-Style Regional Body, and should not be from a country identified in the public statement of the FATF. It is excluding that overseas branches/subsidiaries of Indian banks and overseas wholly owned subsidiary/joint venture of an Indian company will, however, should not be considered as recognized lenders under this ECBs framework.
- The borrowings can be in the form of loans which is non-convertible, optionally convertible or partially convertible preference shares
- The conversion into equity is freely permitted, and is subject to regulation applicable for foreign investment in start-ups
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