RBI lends a helping hand to start-ups through ECBs
The Dollar Business Bureau
The RBI has permitted start-ups to raise $3 million in one financial year through external commercial borrowings (ECBs). This is a move aimed to boost innovation and aid in creating jobs.
In its A.P. (DIR Series) Circular No.13, the RBI has clearly laid down the eligibility criteria for borrowing for the start-ups.
- The borrowing per start-up will be limited to $3 million or equivalent per financial year either in Indian rupees or any convertible foreign currency or a combination of both.
- The borrowing can be in the form of loans or non-convertible, optionally convertible or partially convertible preference shares and the minimum average maturity period will be for 3 years
- In case of borrowing in INR, the non-resident lender, should mobilise INR through swaps/outright sale undertaken through a bank in India
- In case of borrowing in INR, the foreign currency - INR conversion will be at the market rate as on the date of agreement.
- The choice of security to be provided to the lender is left to the borrowing entity. Security can be in the nature of movable, immovable, intangible assets (including patents, intellectual property rights), financial securities, etc., and shall comply with foreign direct investment/foreign portfolio investment/or any other norms applicable for foreign lenders/entities holding such securities.
- Lender/investor shall be a resident of a country who is either a member of Financial Action Task Force (FATF) or a member of a FATF-Style Regional Bodies
- Issuance of corporate or personal guarantee is allowed. Guarantee issued by non-resident(s) is allowed only if such parties qualify as lender who is either a member of Financial Action Task Force (FATF) or a member of a FATF-Style Regional Bodies
- The overseas lender, in case of INR denominated ECB, will be eligible to hedge its INR exposure through permitted derivative products with AD Category-I banks in India. The lender can also access the domestic market through branches/subsidiaries of Indian banks abroad or branches of foreign bank with Indian presence on a back to back basis.
India has the third-largest number of start-ups globally. After assuming power, PM Modi has unveiled a slew of incentives to start-ups that include a tax holiday, inspector raj-free regime, capital gains tax exemption, a Rs.10,000 crore corpus to provide funds and a relaxation of procurement norms.