RBI puts curbs on Re-loan refinancing via ECB route

May 10 2014, 01:44 IST
Comments 0
Banks were allowed to issue non-fund based credit to overseas subsidiaries of Indian companies up to 20% of unimpaired capital of the bank. Banks were allowed to issue non-fund based credit to overseas subsidiaries of Indian companies up to 20% of unimpaired capital of the bank.
SummaryThe Reserve Bank of India (RBI) on Friday barred Indian companies from raising money from subsidiaries...

The Reserve Bank of India (RBI) on Friday barred Indian companies from raising money from subsidiaries of Indian banks overseas through external commercial borrowings (ECBs) to refinance rupee loans.

“It has been decided that eligible Indian companies will not be permitted to raise ECB from overseas branches or subsidiaries of Indian banks for the purpose of refinance/repayment of the rupee loans raised from the domestic banking system,” the central bank said in a notification.

Indian companies in manufacturing, infrastructure and hotel industries were earlier allowed to raise a maximum of $10 billion. The maximum permissible ECB that could be availed of by an individual company was 75% of the average annual export earnings realised during the past three financial years.

The move comes after the RBI, last month, warned banks against issuing letter of credit and guarantees to Indian companies’ overseas subsidiaries and said that such non-fund based credit was being used for purposes other than the business the company is involved.

Recently, a Moody's report pointed out that RBI's restrictions on credit facilities extended by Indian banks to overseas entities of Indian companies is likely to increase the amount of reported bad loans and added that it would reflect a truer picture of banks’ asset quality.

Typically, an Indian company's overseas subsidiary approaches an Indian bank for a guarantee or letter of credit to use it for availing loans from another bank there. Banks were allowed to issue non-fund based credit to overseas subsidiaries of Indian companies up to 20% of unimpaired capital of the bank.

In a circular on April 2012, companies in the power sector were allowed to utilise 40% of the fresh ECB raised towards refinancing of the rupee loan and use the rest 60% of the fresh ECB for fresh capital expenditure for infrastructure project.

TAGS:
Ads by Google

More from Money & Funds

Reader´s Comments
| Post a Comment
Please Wait while comments are loading...