FCNR (B) Loan Consultant for Business - ECB

FCNR (B) loans for Corporates

FCNR (B) loans are beneficial to the corporates on account of following:

  • At times, it may entail lesser interest cost vis-à-vis Rupee borrowings. 
  • The borrower is not required to go to the International market for raising the funds as foreign currency funds are made available in India reducing the cost of raising such funds.
Broad purpose of loans -
Corporates are allowed to obtain foreign currency denominated loans in India under the above scheme for the following purposes:
=> For meeting working capital requirements in Indian Rupees.
=> By way of pre-shipment advances/ post shipment advances to the exporters.
=> Import of raw materials.
=> Import of capital goods.
=> Purchase of indigenous machinery.
=> Repayment of the existing Rupee Term Loan.
=> Repayment of any existing ECB's with the permission from RBI, Govt. of India.

The present guidelines for the different purposes of the loans are as under:

  • For meeting working capital requirements in Indian Rupees.
The loan can be granted after proper assessment and sanction of working capital requirements/ Maximum Permissible Bank Finance (MPBF). The borrowers should have natural hedge to cover themselves from exchange risk, which they will have to bear. The borrowers who do not have natural hedge are required to take forward cover to avoid the exchange risk. The borrowers with a sound financial strength, higher ratings say A+/A and do not have natural hedge may also be considered.

The loan can be disbursed up to 90% of the MPBF limit.

Wherever borrowers are covered under the Loan system for delivery of Bank credit, bifurcation of MPBF limit into foreign currency loan, loan component in rupees, cash credit component and bill limit should conform to RBI guidelines.

The foreign currency loan amount is to be taken as a part of loan component provided minimum period of the loan is -6- months.

Foreign currency loan can be disbursed in -4- currencies viz US$, Sterling, Euro and Japanese Yen.

Minimum amount of the loan
US$, GBP, Euro: 100,000
Japanese Yen: 10 million.

Loan to exporters by way of Pre Shipment Credit in Foreign Currency (PCFC)/ Post Shipment Credit in Foreign Currency (PSFC)

The exporters can avail this facility by way of pre-shipment credit as well as post shipment credit in foreign currency. All other terms applicable to such type of Rupee advances shall also be applicable to foreign currency advances.

Import of raw materials.
The importers can take benefit of foreign currency loans for import of raw materials in lieu of rupee MPBF sanctioned to them. The rupee equivalent of the foreign currency loan amount is to be earmarked in the overall sanctioned MPBF limit. This loan can also be repaid in foreign currency.

Import of capital goods.
The importers of capital goods can avail the foreign currency loan for a period not exceeding -3- years including moratorium period. Normally, the import of capital goods should be arranged on 180 days Usance basis.

Purchase of indigenous machinery.
The corporates can raise the foreign currency loans for their capital expenditure/ project expansion plans etc for the purchase of indigenous machinery.

Repayment of existing Rupee Term Loan
The Foreign Currency Loans can be utilised for the repayment of the existing Rupee Term Loan provided the duration of the foreign currency loan does not exceed the portion of the existing rupee loan which has not yet expired or 3 years whichever is less.

Repayment of ECB's
The repayment of the ECB's requires permission from the Government of India / RBI as per the applicable guidelines. Corporates can raise the FCNR (B) Loans after obtaining requisite permission from RBI/ Govt. of India and completing other formalities.