Ever found yourself lost in the maze of technical terms like FCCB, FCEB, or ECB while studying for the Treasury Investment and Risk Management (TIRM) Diploma? You’re not alone! Many candidates struggle to understand the intricacies of capital market instruments, especially when RBI rules, FEMA guidelines, and maturity conditions start piling up.
This article is your detailed guide to Capital Market Part 2. If you’re aiming for top marks in TIRM Paper 1 or simply wish to understand real-world capital market dynamics, this resource will serve as your go-to reference.
We’ll explain every important concept including:
- What FCCBs and FCEBs are
- Differences between them
- Rules around ECB refinancing
- Regulatory framework for Masala Bonds
- Authorized Dealer bank responsibilities
This content is specially designed for bankers, financial professionals, and IIBF aspirants. Make sure to bookmark it and revisit before your exam!
Before you dive into the content, watch this full-length bilingual session covering every concept, RBI rule, and MCQ from Capital Market Part 2:
🧠 What is FCCB (Foreign Currency Convertible Bond)?
Definition: FCCBs are bonds issued by Indian companies in foreign currency. They allow international investors to convert their debt into equity shares of the issuing company after a specific time.
✔ Key Characteristics:
- Issued in: USD, EUR, GBP, JPY, etc.
- Convertible into: Shares of issuing Indian company
- Sectoral Cap: Must adhere to FDI guidelines and sectoral caps
- Minimum Maturity: 5 years
- Issuance Expenses: Capped at 4% (public), 2% (private)
- Equity Warrants: Not permitted
Use Case Example: A company like Infosys issues FCCBs to foreign investors. After 5 years, investors can convert the bonds into Infosys shares at a pre-agreed price.
🧱 Understanding FCEB (Foreign Currency Exchangeable Bond)
Definition: Similar to FCCBs but with a twist – these bonds are exchangeable into equity of a different company within the same promoter group.
✔ Key Characteristics:
- Issued in: Foreign currency only
- Exchangeable into: Equity shares of another group entity
- Approval Route: Must be routed via RBI approval
- Maturity: Minimum 5 years
- Governing Laws: FEMA and ECB Guidelines apply
Example: Tata Sons issues an FCEB that allows bondholders to receive shares in Tata Motors, a subsidiary under the Tata group.
📊 All About ECB Refinancing
Refinancing is replacing an old ECB loan with a new one, ideally under better cost terms. This helps in reducing interest burden or extending maturity.
⚠ Conditions to Remember:
- Lower All-in-Cost: The new ECB must be cheaper in total cost than the existing one
- Maturity Period: Cannot be shorter than the balance maturity of the old ECB
- Domestic Banks: Not allowed to refinance ECBs
Calculation Example: If a company issued ECB for 10 years and after 4 years raises a new ECB to repay the old one, the new ECB must have minimum 6 years maturity remaining.
🇮🇳 What are Rupee Denominated Bonds (Masala Bonds)?
RDBs are issued overseas but denominated in Indian Rupees. The foreign investor bears the currency risk, which is ideal for Indian borrowers.
✔ Regulatory & Usage Details:
- Issued By: Indian companies, REITs, InvITs registered with SEBI
- Minimum Maturity: 5 years
- Limit: USD 50 million under automatic route
- Issued: Outside India and can be listed on foreign exchanges
- Investor Base: Only FATF-compliant jurisdictions allowed
⛔ Prohibited Uses:
- Real estate (unless for affordable housing/township)
- Capital market investment
- On-lending to restricted entities
💼 Role of Banks:
Indian banks can act as arrangers or underwriters but can’t hold more than 5% of the issue after 6 months and can’t invest directly.
💳 AD Bank FCY Borrowing Rules
Authorized Dealers (Category I banks) are allowed to raise foreign currency loans for specific purposes.
✔ Permissible Sources:
- Foreign branches or head offices
- Foreign correspondent banks
Not Allowed: From domestic retail depositors
[FREE PDF] IIBF TIRM | Capital Market MCQs Part 1 | IIBF Most Expected Questions
✔ Max Borrowing Limit:
100% of unimpaired Tier 1 capital or USD 10 million, whichever is higher
✔ Permitted Usage:
- Export finance (pre/post-shipment)
- Normal business operations of overseas branches
- Lending to Indian companies with 51%+ stake in overseas JV/WOS
Not Allowed: Lending where Indian holding in foreign company is only 25%
📉 Final Thoughts
This detailed guide should serve as your permanent reference for Capital Market Part 2 under the TIRM syllabus. Whether you’re studying for exams or want to strengthen your understanding for your banking career, mastering these concepts will give you an edge.
Key Takeaways:
- FCCB and FCEB differences
- RBI rules for ECB refinancing
- Rupee Denominated Bonds and their regulatory use
- Borrowing rules for AD Banks
Continue your preparation with full confidence and don’t forget to solve practice MCQs regularly!
📅 Download PDF Notes – Free Study Resource!
📂 Click here to download the complete PDF containing:
- Session Summary
- MCQs for Practice
- Quick Concept Revisions
- Important Tables and Limits
Stay consistent and keep revising. Good luck! 🚀
Also Like:
