RBI issues ECB Guidelines for Start-Ups
The Reserve Bank of India (RBI) vide Notification dated October 27, 2016 has issued guidelines for startups to access debt or debt instruments under the External Commercial Borrowing (ECB) framework. Start-ups can borrow up to $3 million or equivalent per financial year — either in rupees, or any convertible foreign currency or a combination of both — for a minimum average maturity period of three years, under the ECB framework.
'Startup' has been defined as a private limited company (as defined in the Companies Act, 2013), or a registered partnership firm (registered under section 59 of the Partnership Act, 1932) or a limited liability partnership (under the Limited Liability Partnership Act,2002), which fulfills the following conditions:
- incorporated or registered in India not prior to five years;
- its turnover for any of the financial years has not exceeded INR 250 million; and
- it is working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property;
RBI said the lender/investor in the ECB should be a resident of a country which is either a member of the Financial Action Task Force or a member of a FATF-Style Regional Body, and should not be from a country identified in the public statement of the FATF. Overseas branches/subsidiaries of Indian banks and overseas wholly owned subsidiary/joint venture of an Indian company will, however, not be considered as recognized lenders under this framework. According to the RBI, the borrowing can be in the form of loans, non-convertible, optionally convertible or partially convertible preference shares. Conversion into equity is freely permitted, subject to regulations applicable for foreign investment in start-ups. The ECB proposed to be availed by the start up may carry an interest rate, as mutually agreed between the borrower and the lender.
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