Top 7 Things You Must Know About External Commercial Borrowing (ECB)

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Top 7 Things You Must Know About External Commercial Borrowing (ECB)
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Top 7 Things You Must Know About External Commercial Borrowing (ECB) in 2025

Financing would be the very first which would come into your mind if you are contemplating the problems that a company specifically a start-up company may experience in India. Financing is the most needed concern every company needs to encounter with regards to managing money for the business.

There are different sources by which a company can raise money for its operation, and every one of the different sources has advantages and disadvantages. One of the different sources is External Commercial Borrowings (ECB) by which a company can finance its operation.

External Commercial Borrowing (ECB) has been a key strategic funding instrument for Indian firms to raise foreign capital for over three decades. Navigating through 2025, the regulatory environment, market forces, and international economic conditions of ECB have changed. As an investment banker, business manager, or investor, it's essential to know the primary drivers of ECB in 2025.

  1. What are External Commercial Borrowings (ECB)?

    2. External Commercial borrowings (ECB) are commercial borrowings borrowed by resident eligible entities from allowed non-resident associate entities.

    ECBs can be of different kinds such as bank loans, securitized instruments, buyers' credit, suppliers' credit, Foreign Currency Convertible Bonds (FCCBs), Financial Lease, and Foreign Currency Exchangeable Bonds (FCEBs).

    Through 2025, ECB remains an economic substitute for internal financing because of cost-competitive interest rates globally and easy access to capital.

  2. How to raise ECB in India?

    3. ECBs can be raised by two routes i.e.,

    • Approval route
    • Automatic route

    ECB facility has the following two methods of raising loans,

    • Foreign currency denominated ECB
    • INR denominated ECB

    Currency of Borrowing: As per the name, in the case of foreign currency denominated ECBs, the loan can be raised in any freely convertible foreign currency. In ECBs denominated in the currency of INR, it is possible to raise only an Indian Rupees loan.

  3. Borrowers Eligible:

    4. Foreign Currency Denominated ECB: Port trusts, Small Industries Development Bank of India, Export Import Bank of India, Units of Special Economic Zones and all entities are eligible to raise ECB.

    INR Denominated ECB: All entities eligible to raise an FCY-denominated ECB and Registered bodies engaged in microfinance activities, for example, registered Not for Profit.

  4. Effect on start-ups with ECB

    5. According to external commercial borrowings guidelines released every year, all the Indian startups who are eligible to use FDI can apply for ECB.

    It is an extremely good source of Indian startups receiving foreign investments at a relatively lower cost. It not only makes them more financially sound, but also assists them in growth and development. With RBI having open guidelines, it has now become extremely easy for startups to access ECB overseas.

  5. Can I use the ECB borrowed for any purpose?

    6. No, ECB proceeds cannot be used for any purposes. There are certain restrictions on the usage of ECB which are called as “Negative list”. The type of restricted financial activities is listed below:

    ECB proceeds cannot be used for the following purposes:

    • Real estate activities
    • Capital market investment
    • Equity investment
    • Working capital purpose, General corporate purpose and Repayment of rupee loans, other than where ECB is borrowed solely for such purposes and borrowed by NBFC.

  6. Which documents are required to borrow ECB for purpose?

    7. A borrower who is eligible to borrow ECB must possess the following list of documents which must be forwarded to the RBI through the intermediary of AD Category- I bank for borrowing funds;

    • Loan agreement
    • Loan registration number (It must be taken from RBI prior to availing the ECB)
    • Copy of respective offer letter providing the respective information of the offer.
    • Undertaking by proposed director of the company that the ECB shall be used only for approved purposes.
    • Customer request letter.
    • Average maturity period Schedule- Raising funds by way of ECB is possessing some maturity, which is known as minimum average maturity period.

  7. Steps followed in ECB in India

If you are eligible borrower and you are ready to accept loan (ECB) from Non-resident associate entity, then below are the steps executed in it;

  1. Filing of Form ECB & Loan agreement: Borrower will submit the application for ECB and signed loan agreement by the Non-resident associate entity to an Authorized Dealer (AD) Bank. Borrower will also submit such documents as offer letter, Customer request letter, director's undertaking and average maturity period schedule with the AD category bank. Following submission of documents AD Bank will check the documents submitted.
  2. RBI submission: RBI accepts documents from AD Bank after proper verification
  3. LRN issue: RBI issues LRN after verification of documents and application
  4. Loan drawdown: After issue of LRN, borrower can draw down the loan for crediting in the account. 5. Monthly reporting requirements: The borrower shall file the ECB transaction on Form ECB 2 within seven workings from the last day of the month to which it relates as soon as the drawdown is effective. Alterations of the ECB parameters are also to be filed on Form ECB 2 return.

To be filed along with bank:

  • Signatory signed Form ECB 2 by authorized signatory.
  • Customer Request Letter for filing ECB 2.
  • Certificate of the Company Secretary or Chartered Accountant that the return is full and is as per RBI guidelines.
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