Business Standard reports that the Reserve Bank of India (RBI) in its plans to liberalizing regulatory norms for outbound investments, is considering allowing Indian companies to directly give loans to their step-down companies for overseas business expansions. A step-down company is a subsidiary of a holding company abroad which is set up by Indian entity. At present, an Indian corporate can extend loans only to a company in which it holds direct stake.
The RBI may ask banks to do the diligence in such matters of extending loans to such ‘step-downs’. The fund (debt) will have to be within the existing limit of 200% of the net worth of the Indian company. Funding the operating company through holding company has attendant complexities and direct assistance is expected to save cost and make transaction transparent.
These issues were discussed by RBI deputy governor Shyamala Gopinath while addressing a conference on cross-border acquisitions organized by the Bombay Chamber of Commerce.
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