Under the External Commercial Borrowing (ECB) framework governed by the Reserve Bank of India (RBI), the parking of ECB proceeds refers to how the borrowed funds are maintained and utilized before their deployment for the permitted end-use. Below are the key guidelines and conditions for parking ECB proceeds:

1. Parking ECB Proceeds Outside India

ECB borrowers may park the borrowed funds outside India under the following conditions:

• Permitted Accounts:
  • ECB proceeds can be parked in foreign currency accounts with overseas branches or subsidiaries of Indian banks.
  • The funds can also be kept with international banks outside India.
• Purpose:
  • This option is generally used when the funds are to be deployed in phases or when immediate use in India is not required.
• Investment Options:
  • ECB proceeds parked abroad may be invested in the following liquid instruments:
    • Treasury Bills issued by the central government of the foreign jurisdiction.
    • Deposit Certificates of top-rated banks.
    • Other short-term investments with high credit ratings as approved by the RBI.

2. Parking ECB Proceeds in India

ECB proceeds can also be parked in India under specific conditions:

• Account Type:
  • Funds should be kept in a designated ECB account in compliance with FEMA regulations.
• Deposit Options:
  • The proceeds can be deposited as:
    • Fixed Deposits with Indian banks for a short duration.
    • Other short-term rupee deposits permitted under the ECB guidelines.
• Utilization Timeline:
  • The proceeds parked in India must be utilized for the specified end-use as approved under the ECB framework.

3. Conditions for Parking of ECB Proceeds

• Adherence to End-Use Restrictions:
  • ECB proceeds must eventually be deployed only for the permitted purposes, such as capital expenditure, working capital, refinancing of rupee loans, etc., as per the ECB agreement.
• Compliance with FEMA:
  • All accounts where ECB proceeds are parked (both domestic and overseas) must comply with FEMA and RBI regulations.
• Tenure of Parking:
  • There is no fixed tenure for parking, but the funds must be used as per the stipulated timeline in the ECB agreement.

4. Documentation and Reporting

• Declaration to AD Bank:
  • ECB borrowers must inform the Authorized Dealer (AD) Bank about the parking arrangement.
• ECB Monthly Return:
  • The utilization of ECB proceeds, including details of parking, must be reported in the ECB-2 return submitted to the RBI on a monthly basis.

5. Non-Compliance and Penalties

• Misuse or improper parking of ECB proceeds can lead to:
  • Penalties under FEMA, 1999.
  • Restrictions on accessing ECB in the future.
  • Enhanced scrutiny by RBI and other regulators.

Key Points to Note

1. Hedging: Borrowers are encouraged to hedge the ECB proceeds to manage currency risk if parked in foreign currency accounts.
2. Liquidity Management: Investments made while parking funds should maintain high liquidity to enable timely deployment for the approved end-use.
3. Periodic Review: Ensure that the parking and usage of ECB proceeds align with the agreed terms and conditions of the borrowing agreement.

Would you like further clarification on the end-use restrictions, parking arrangements, or filing requirements?