Offshore borrowing

Yes, Non-Banking Financial Companies (NBFCs) in India are permitted to borrow from offshore lenders, typically through the External Commercial Borrowings (ECB) framework regulated by the Reserve Bank of India (RBI).

Key Takeaways for NBFCs

• Eligibility: NBFCs are generally eligible to raise funds through ECBs. Since 100% Foreign Direct Investment (FDI) is permitted in most NBFC activities under the automatic route, they qualify as eligible borrowers under the ECB framework.

• Permitted Sources: Offshore lenders must be from a country that is compliant with the Financial Action Task Force (FATF) or the International Organization of Securities Commissions (IOSCO). Common lenders include:

  • Foreign banks and financial institutions.

  • Multilateral and regional financial institutions where India is a member.

  • Foreign equity holders (companies or individuals holding at least 25% of the shares in the borrowing NBFC).

• Routes for Borrowing:

  • Automatic Route: If the proposal meets all specified conditions (such as maturity, end-use, and all-in-cost ceilings), the NBFC does not need prior RBI approval. They can approach an Authorized Dealer (AD) Category-I bank with a completed Form ECB.

  • Approval Route: If a proposal does not meet the automatic route criteria, the NBFC must apply to the RBI for approval through its AD bank.

• Reporting: Borrowers must obtain a Loan Registration Number (LRN) from the RBI by submitting the necessary documentation (Form ECB) through their AD bank. This is a mandatory procedural requirement.

• Compliance: NBFCs must adhere to specific parameters, including minimum average maturity periods, restricted end-uses (e.g., specific limitations on working capital or general corporate purposes), and all-in-cost ceilings (interest and fees).

Important Considerations

• Restrictions: NBFCs cannot provide any form of guarantee (implicit or explicit) for their foreign subsidiaries or overseas entities without RBI's prior 'No Objection' (NoC).

• Regulatory Updates: ECB guidelines are frequently updated by the RBI. It is critical to refer to the current Master Direction on External Commercial Borrowings, Trade Credits, and Structured Obligations available on the official RBI website to ensure compliance with the latest limits and reporting requirements.

Summary: NBFCs are allowed to access offshore funds via the ECB framework provided they comply with RBI's procedural and end-use guidelines. Most transactions occur under the "Automatic Route," which does not require prior RBI approval, provided all eligibility criteria are met and the required documentation (like the LRN) is processed through an Authorized Dealer bank.