RBI/2004-05/486
DBOD. Dir.No.BC.93 /13.07.05/2004-05
June 7, 2005
The Chairman and Managing Directors/Chief
Executive Officers of
All Scheduled Commercial Banks
( Excluding RRBs and LABs)
Dear Sir,
Financing of acquisition of equity
in overseas companies
Please refer to our Master Circular
No. DBOD. Dir.BC.90/13.07.05/98 dated August 28, 1998 on bank finance against
shares and debentures. In terms of para 8 of the circular promoters’ contribution
towards the equity capital of a company should come from their own resources
and banks should not normally grant advances to take up shares of other companies.
However, a few exceptions have been made in this regard. One of the exceptions
listed in para 8(iv) of the circular provides that under the refinance scheme
of Export-Import Bank of India, banks may sanction term loans on merits to eligible
Indian promoters for acquisition of equity in overseas joint ventures/wholly
owned subsidiaries, provided the term loans have been approved by the EXIM Bank
for refinance.
2. The above guidelines have been
reviewed and it has been decided to allow banks to extend financial assistance
to Indian companies for acquisition of equity in overseas joint ventures/wholly
owned subsidiaries or in other overseas companies, new or existing, as strategic
investment, in terms of a Board approved policy, duly incorporated in the loan
policy of the bank. Such policy should include overall limit on such financing,
terms and conditions of eligibility of borrowers, security, margin, etc.
3. While the Board may frame its
own guidelines and safeguards for such lending, such acquisition(s) should be
beneficial to the company and the country.
4. The finance would be subject
to compliance with the statutory requirements under Section 19(2) of the Banking
Regulation Act, 1949.
Yours faithfully,
(Anand Sinha)
Chief General Manager-in-Charge |