The Reserve Bank of India will look at allowing Indian companies to directly give loans to their step down companies for overseas business expansion. This is in line with liberalisation of norms for outbound investments.
The step down companies is a subsidiary of a holding company abroad which is set up by Indian entity. At present, Indian corporate can extend loan only to a company in which it holds direct stake.
The RBI may ask banks to do the diligence in such matters (extending loan).
The fund (debt) will have to be within the existing limit of 200 percent of net worth of India company, RBI deputy governor Shyamala Gopinath said this while addressing a conference on cross-border acquisitions organised by the Bombay Chamber of Commerce on Friday.
Funding the operating company through holding company has attendant complexities and direct assistance is expected to save cost and make transaction transparent, analyst said.
Gopinath said the regulations and rules on outbound investments have been reformed substantially and THE RBI would shortly issue revised format for getting information on overseas acquisitions. The aim is to make format simple and do away with unnecessary details.
Earlier, Indian companies had to give justification to the RBI why they wished to establish presence abroad and explain what its impact would be and also provide business plans.
The RBI will be quite careful on the overseas expansion by Indian financial sector players. They have lot many fiduciary responsibilities in the country and it is important that home country (India) regulator is aware about the expansion abroad, the deputy governor said.
The librealisation of the regulations for overseas remittance will happen in phases as the RBI will not want to reverse the polices at later date, she added.
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