RESERVE BANK OF INDIA
FOREIGN EXCHANGE DEPARTMENT
CENTRAL OFFICE
MUMBAI
Notification No. FEMA .126/2004-RB.
Dated December 13, 2004
Foreign Exchange Management (Borrowing
or Lending in Foreign Exchange) (Second Amendment)
Regulations, 2004
In exercise of the powers conferred by clause
(d) of sub-section (3) of Section 6, and sub section (2) of Section 47 of the
Foreign Exchange Management Act, 1999 (42 of 1999), and in partial modification
of its Notification No. FEMA 3/2000-RB dated May 3, 2000, the Reserve Bank of India makes the
following regulations to amend the Foreign Exchange Management (Borrowing or
Lending in Foreign Exchange) Regulations, 2000, as amended from time to time,
namely:-
2. Short title and commencement
(a) The Regulations may be called the Foreign
Exchange Management (Borrowing or Lending in Foreign Exchange) (Second Amendment)
Regulations, 2004
(b) They shall come into force from the date specified hereunder.
3. Amendment of Regulation 6
In the Foreign Exchange Management (Borrowing
or Lending in Foreign Exchange) Regulations, 2000, (hereinafter referred to
as ‘the Principal Regulations’)
(a) in Regulation 6,
(i) for the Heading and sub-regulation (1), the following heading
and sub-regulations shall be substituted, namely :-
'6. Other borrowings in foreign exchange under Automatic
Route or with prior approval of Reserve Bank of India under the Approval Route
or as Trade Credit
(1) A person resident in India, other than a branch or office
in India owned or controlled by a person resident outside India, may raise
in accordance with the provisions of the Automatic Route Scheme specified
in Schedule I, foreign currency loans of the nature and for
the purposes as specified in that Schedule; provided that this shall be deemed
to have come into force with effect from February 1, 2004 except in relation
to item 1(iv)(A)(c) of Schedule I which shall be deemed to
have come into force with effect from February 23, 2004.
(2) A person resident in India who desires to raise foreign
currency loans of the nature or for the purposes as specified in Schedule
II and who satisfies the eligibility and other conditions specified in
that Schedule, may apply to the Reserve Bank for prior approval to raise such
loans; provided that this shall be deemed to have come into force with effect
from February 1, 2004 except in relation to item 3(iii)(A)(c) of Schedule
II which shall be deemed to have come into force with effect from February
23, 2004.
(3) Trade Credit not exceeding USD 20 million per import
transaction shall be raised by borrowings subject to the terms specified in
Schedule III hereto; provided that this shall be deemed to
have come into force with effect from April 17, 2004.'
ii. The existing sub-regulation (2) shall be renumbered as (4)
. iii. In the renumbered sub-regulation (4) the words 'Where
prior approval is required' may be added in the beginning.
iv. The existing sub-regulation (3) shall be
substituted by 'The Reserve Bank may grant its approval to any other foreign
currency loan proposed to be raised by a person resident in India, which falls
outside the scope of Schedules I, II and III,
subject to such terms and conditions as it may consider necessary.' This
sub-regulation shall be renumbered as sub-regulation (5).
4. Amendment to Schedule
The existing 'Schedule' attached to the Regulations
shall be replaced by Schedule I, Schedule II
and Schedule III.
F. R.
Joseph
Chief General Manager
Foot Note: The Principal Regulations were published in the Official
Gazette vide G. S. R. No. 386(E) dated May 5, 2000 in Part II, Section 3, Sub-
section (i) and subsequently amended vide
(a) G.S.R.No.674(E) dated August 25, 2000
(b) G.S.R.No.476(E) dated July 8, 2002
(c) G.S.R.No.854(E) dated December 31, 2002
(d) G.S.R.No.531(E) dated July 9, 2003
(e) G.S.R.No.533(E) dated July 9, 2003, and
(f) G.S.R.No.208(E) dated March 23, 2004
Published in the Official Gazette of Government
of India - Extraordinary - Part-II, Section 3,
Sub-Section (i) dated 22.12.2004 - G.S.R.No.825(E) |
SCHEDULE I
[(See Regulation 6(1)]
Borrowings in Foreign Exchange under the Automatic
Route
(1) Borrowing in Foreign Exchange up to US$
500 Million or its equivalent
The borrowing in foreign exchange by a person
resident in India under the Automatic Route is subject to the terms and conditions
set out in this schedule.
i) Eligibility
Any corporate registered under the Companies
Act, 1956 shall be eligible to borrow in terms of this Schedule. However, financial
intermediaries (such as banks, financial institutions (FIs), housing financing
companies, Non-Banking Finance Companies, Trusts, Non-Profit making organisations
(NPOs), Micro Finance Institutions, proprietorship / partnership concerns and
individuals are not eligible to borrow under the Automatic Route.
ii) Amount
The borrowing in foreign exchange under the
Automatic Route whether raised in tranches or otherwise shall not exceed US$
500 Million in any one financial year (April-March).
iii) Lenders
The borrowings in foreign currency by way of
issue of bonds, floating rate notes or other debt instruments by whatever name
called may be made from -
a) International bank or export credit agency
or international capital market or
b) Multilateral financial institutions, namely,
IFC, ADB, CDC etc., or
c) Foreign collaborator or foreign equity
holder as specified by the Reserve Bank or
d) Supplier of equipments provided the amount
of loan raised does not exceed the total cost of the equipment being supplied
by the lender or
e) Any other eligible entity as prescribed by
the Reserve Bank in consultation with Government of India
iv) Purpose (End-use)
A) Borrowing in foreign exchange in terms
of this Schedule may be for any of the following purposes, namely: -
a) for investment (such as import of
capital goods, new projects, modernisation / expansion of existing production
units) in real sector - industrial sector including small and medium enterprises
(SME) and infrastructure sector - in India.
Explanation : The following sectors
will qualify as infrastructure sectors, namely:.
Power , Telecommunications, Railways,
Roads including bridges, Ports, Industrial Parks and Urban infrastructure
(water supply, sanitation and sewage projects),
b) for first stage acquisition of shares
in the disinvestment process and also in the mandatory second stage offer
to the public under the Government's disinvestment programme of PSU shares
,
c) for direct investment in overseas
Joint Ventures (JV)/Wholly Owned Subsidiaries (WOS) subject to the existing
guidelines on Indian Direct Investment in JV/WOS abroad.
B) Other than the purposes specified hereinabove,
the borrowings shall not be utilised for any other purpose including the following
purposes, namely:
On-lending, investment in capital (stock) market,
investment in real estate business, working capital requirements, general corporate
purpose, and repayment of Rupee loans
Note - For the purpose of this clause, real
estate business shall not include development of integrated township as defined
by the Government of India, Ministry of Commerce and Industry, Department of
Industrial Policy and Promotion, SIA (FC Division), Press Note 3(2002 Series)
dated January 4, 2002.
v) Maturity
The maturity of the borrowings in foreign
exchange shall be as under :
|
Amount
|
Minimum Average
Maturity
|
| i) Up to US$ 20 Million or equivalent |
Not less than 3 years |
|
ii) Exceeding US$ 20 Million and upto
US$ 500 Million or equivalent
|
Not less than 5 years |
Note - Borrowing up to US$ 20 Million can
have call/put option provided the minimum average maturity of 3 years as prescribed
above is complied with before exercising call/put option.
vi) All-in-cost ceilings
The all-in-cost ceilings for the borrowing in
foreign exchange shall be specified by the Reserve Bank from time to time
vii) Security
The borrower shall be at liberty to provide
security to the lender / suppliers, provided that-
a) Where the security is in form of immovable
property in India or shares of a company in India, it shall be subject to
Regulation 8 of Notification No.FEMA.21/
2000-RB dated May 3, 2000 and Regulation 3 of Notification No.FEMA.20/2000-RB
dated May 3, 2000, respectively.
b) Guarantee
Banks, financial institutions and Non-Banking
Finance Companies shall not provide (issue) guarantee or Letter of Comfort
or Standby Letter of Credit in favour of overseas lender on behalf of their
constituents for their borrowings in foreign exchange.
viii) Prepayment
Notwithstanding the provisions of clause (v)
above, prepayment of outstanding foreign currency loan may be made as per the
directives issued by the Reserve Bank from time to time.
ix) Parking of loan amount abroad
The proceeds of borrowings in foreign exchange
shall be parked abroad until actual requirement in India.
x) Loan Agreement
The loan agreement entered into by the borrower
with the overseas lender shall strictly conform with these Regulations.. The
procedure for obtaining loan registration number would be prescribed by the
Reserve Bank.
xi) Drawal of Loan
Draw-downs of borrowing in foreign exchange
shall be made strictly in accordance with the terms of the loan agreement only
after obtaining the loan registration number from the Reserve Bank.
xii) Reporting
The borrower shall adhere to the reporting procedure
as specified by the Reserve Bank from time to time.
xiii) Debt Servicing
The designated Authorised Dealer (AD) shall
have the general permission to make remittances of principal, interest and other
charges in conformity with the guidelines on borrowing in foreign exchange from
overseas, issued by Central Government / the Reserve Bank from time to time.
2. Refinancing of existing borrowing in foreign
exchange
(i) Refinancing of outstanding amounts of
loans raised in foreign exchange in accordance with the Act or the Rules and
Regulations made thereunder, may be made by making fresh borrowing in foreign
exchange in accordance with this Schedule provided that there is reduction in
cost of borrowing and the outstanding maturity of the original borrowing is
not reduced.
ii. Provisions of sub-paragraphs (ii), and
(v) of paragraph 1 shall not apply to the borrowings made under Clause 2 (i),
SCHEDULE II
[See Regulation 6(2)]
Borrowings in Foreign Exchange under the Approval Route
(1) The borrowing in foreign currency ( other
than the borrowings under Schedule I) by a person resident
in India may be made under any of the types set out in this Schedule.
(2) The application for the approval of the
Reserve Bank under Regulation 6(2) for borrowing under any of the types where
its approval is required shall be made in the Form as specified by the Reserve
Bank from time to time.
(3) The borrowing in foreign exchange by
a person resident in India under the Approval Route is subject to the terms
and conditions set out in this schedule.
(i) Eligibility
The following entities shall be eligible to
apply for foreign currency borrowings under the Approval Route -
a) Any corporate registered under the Company's
Act, 1956.
b) Financial institutions dealing exclusively
with infrastructure or export finance such as IDFC, IL& FS, Power Finance
Corporation, Power Trading Corporation, IRCON and Exim Bank.
c) Banks and financial institutions which
had participated in the textile or steel sector restructuring package as approved
by the Central Government.
d) Entities falling outside the purview of
the Automatic Route as per Schedule I.
ii) Lenders
The borrowings in foreign currency by way
of issue of bonds, floating rate notes or other debt instruments by whatever
name called may be made from -
a) International bank or export credit
agency or international capital market or
b) Multilateral financial institutions,
namely, IFC, ADB, CDC etc., or
c) Foreign collaborator or foreign equity
holder as specified by the Reserve Bank or
d) Supplier of equipments provided the
amount of loan raised does not exceed the total cost of the equipment being
supplied by the lender or
e) Any other eligible entity as prescribed
by the Reserve Bank in consultation with Government of India
iii) Purpose (End-use)
A) Borrowing in foreign exchange in terms
of this Schedule may be for any of the following purposes, namely :-
a) for investment (such as import of
capital goods, new projects, modernisation / expansion of existing production
units) in real sector - industrial sector including small and medium enterprises
(SME) and infrastructure sector - in India.
Explanation : The following sectors
will qualify as infrastructure projects, namely:-
i) Power, Telecommunications, Railways,
Roads including bridges, Ports, Industrial Parks and Urban infrastructure
(water supply, sanitation and sewage projects).
b) for first stage acquisition of shares
in the disinvestment process and also in the mandatory second stage offer
to the public under the Government's disinvestment programme of PSU shares.
c) for direct investment in overseas
Joint Ventures (JV)/Wholly Owned Subsidiaries (WOS) subject to the existing
guidelines on Indian Direct Investment in JV/WOS abroad.
B) Other than the purposes specified hereinabove,
the borrowings shall not be utilised for any other purpose including the following
purposes, namely:-
On-lending, investment in capital (stock) market,
investment in real estate business, working capital requirements, general corporate
purpose and repayment of Rupee loans
Note - For the purpose of this clause, real
estate business shall not include development of integrated township as defined
by the Government of India, Ministry of Commerce and Industry, Department of
Industrial Policy and Promotion, SIA (FC Division), Press Note 3(2002 Series)
dated January 4, 2002.
iv) Maturity
The maturity of the borrowings in foreign
exchange shall be as under :
|
Amount
|
Minimum Average
Maturity
|
| i) Up to US$ 20 Million or equivalent |
Not less than 3 years.
|
|
ii) Exceeding US$ 20 Million and upto
US$ 500 Million or equivalent
|
Not less than 5 years |
Note - Borrowing up to US$ 20 Million can
have call/put option provided the minimum average maturity of 3 years as prescribed
above is complied with before exercising call/put option.
v) All-in-cost ceilings
The all-in-cost ceilings for the borrowing in
foreign exchange shall be specified by the Reserve Bank from time to time
vi) Security
The borrower shall be at liberty to provide
security to the lender / suppliers, provided that-
a) Where the security is in form of immovable
property in India or shares of a company in India, it shall be subject to
Regulation 8 of Notification No.FEMA.21/2000-RB
dated May 3, 2000 and Regulation 3 of Notification
No.FEMA.20/2000-RB dated May 3, 2000, respectively.
b) Guarantee
Banks, financial institutions and
Non-Banking Finance Companies shall not provide (issue) guarantee or Letter
of Comfort or Standby Letter of Credit in favour of overseas lender on behalf
of their constituents for their borrowings in foreign exchange.
Exception – Banks, financial institutions
and Non-Banking Finance Companies shall be permitted to provide Bank Guarantee,
or Letter of Comfort or Standby Letter of Credit in favour of Small and
Medium Enterprises (SMEs) with the approval of the Reserve Bank.
vii) Prepayment
Notwithstanding the provisions of clause
(iv) above, prepayment of outstanding foreign currency loan may be made as per
the directives issued by the Reserve Bank from time to time.
viii) Parking of loan amount abroad
The proceeds of borrowings in foreign exchange
shall be parked abroad until actual requirement in India.
ix) Loan Agreement
The loan agreement entered into by the borrower
with the overseas lender shall strictly conform with these Regulations. The
procedure for obtaining loan registration number would be as specified by the
Reserve Bank.
x) Drawal of loan
Draw-downs of borrowing in foreign exchange
shall be made strictly in accordance with the terms of the loan agreement only
after obtaining the loan registration number from the Reserve Bank.
xi) Reporting
The borrower shall adhere to the reporting procedure
as specified by THE Reserve Bank from time to time.
xii) Debt Servicing
The designated Authorised Dealer (AD) shall
have the general permission to make remittances of principal, interest and other
charges in conformity with the guidelines on borrowing in foreign exchange from
overseas, issued by Central Government / the Reserve Bank from time to time.
(4) Refinancing of existing borrowing in
foreign exchange
(i) Refinancing of outstanding amounts of
loans raised in foreign exchange in accordance with the Act or the Rules and
Regulations made thereunder, may be made by making fresh borrowing in foreign
exchange in accordance with this Schedule provided that there is reduction in
cost of borrowing and the outstanding maturity of the original borrowing is
not reduced.
(ii) Provisions of sub-paragraphs (iv) of
paragraph 3 shall not apply to the borrowings made under Clause 4(i).
SCHEDULE III
[See Regulation 6(3)]
Trade Credit
1. Foreign currency credit/loan extended for imports in to
India by the overseas supplier, bank and financial institution for original
maturity of less than 3 years is hereinafter referred to as ‘Trade Credit’
for imports. Depending upon the source of finance, such trade credit includes
suppliers’ credit or buyers’ credit.
2. Authorised Dealers (ADs) in foreign exchange are permitted
to approve trade credits up to USD 20 million per import transaction for import
of all items permissible under the Foreign Trade Policy (except Gold) with
a maturity period (from the date of shipment) up to one year. For import of
capital goods, ADs are permitted to approve trade credits up to USD 20 million
per import transaction with a maturity period of more than one year and less
than three years. No roll-over/extension will be permitted by the AD beyond
the permissible period.
3. Trade Credit exceeding USD 20 million per import transaction
will require the prior approval of the Reserve Bank of India.
|