Reserve Bank to ease overseas financing regulations

Mumbai, Jan 19 | Updated: Jan 20 2007, 05:57am hrs
To ease overseas financing norms, the Reserve Bank of India (RBI) is planning to permit parent companies to fund overseas expansions via a step-down company.

Typically, in a step-down company, the parent doesnt hold a direct stake, but via a holding company. The central bank has also urged the banking community to carry out a proper evaluation of companies planning overseas acquisitions. Speaking at the sidelines of a seminar on Indian cross-border presence and acquisition organised by Bombay Chamber of Commerce, RBIs deputy governor Shyamala Gopinath, said, The pace of overseas mergers and acquisitions by Indian companies will continue, though banks should do an evaluation before financing such loans. There is a need for proper assessment of such deals by the banks.

As per RBI norms, Indian banks are not permitted to fund domestic acquisitions for India Inc.

As a result, the banks have started concentrating on the out bound deals (Indian company acquiring company abroad), which has given a big boost to their fee-based income. Many of the corporates looking for overseas expansion prefer to set up a special purpose vehicle (SPV) overseas, which enable them to raise funds from the international market. These SPVs arrange funds through various routes such as straight bonds, convertible bonds, external commercial borrowing etc. Relaxing of overseas funding norms would facilitate companies to expedite the process of increasing their cross border presence.