RBI had earlier imposed restrictions on persons resident in India who have borrowed in Rupees from a person resident outside India to the effect that such borrowed funds cannot be used for any investment, whether by way of capital or otherwise, in any company or partnership firm or proprietorship concern or any entity, whether incorporated or not, or for relending.
On a review, RBI has decided vide its circular RBI/2013-14/416 A.P. (DIR Series) Circular No.81 dated December 24, 2013 to permit such resident entities / companies in India, authorised by the Government of India, to issue tax-free, secured, redeemable, non-convertible bonds in Rupees to persons resident outside India to use such borrowed funds for the following purposes:
for on lending / re-lending to the infrastructure sector; and
for keeping in fixed deposits with banks in India pending utilization by them for permissible end-uses.
RBI has in order to strengthen the flow of resources to infrastructure sector, decided to permit Holding Companies / Core Investment Companies (CICs) coming under the regulatory framework of the Reserve Bank to raise ECB under the automatic route/approval route, as the case may be, for project use in Special Purpose Vehicles (SPVs). This was notified vide its circular RBI/2013-14/397A.P. (DIR Series) Circular No. 78 dated December 3, 2013. The following are the terms and conditions in this regard:
The business activity of the SPV should be in the infrastructure sector where “infrastructure” is defined as per the extant ECB guidelines;
The infrastructure project is required to be implemented by the SPV established exclusively for implementing the project;
The ECB proceeds is utilized either for fresh capital expenditure (capex) or for refinancing of existing Rupee loans (under the approval route) availed of from the domestic banking system for capex as per the extant norms on refinancing;
The ECB for SPV can be raised up to 3 years after the Commercial Operations Date of the SPV;
The SPV should give an undertaking that no other method of funding, such as, trade credit (if for import of capital goods), etc. will be utilized for that portion of fresh capital expenditure financed through ECB proceeds;
The ECB proceeds should be kept in a separate escrow account as per the extant guidelines on parking of ECB proceeds pending utilization for permissible end-uses and use of such proceeds should be strictly monitored by the ADs for permissible uses;
In case of Holding Companies that come under the Core Investment Company (CIC) regulatory framework of the Reserve Bank, the additional terms and conditions for raising ECB for project use in SPVs will be as under:
The ECB availed is within the ceiling of leverage stipulated for CICs, i.e., their outside liabilities including ECB cannot be more than 2.5 times of their adjusted net worth as on the date of the last audited balance sheet; and
In case of CICs with asset size below Rupees 100 crore, the ECB availed of should be on fully hedged basis.
RBIs earlier circular: Circular DNBS.PD.CC.No. 354/03.10.001/2013-14 dated August 02, 2013 refers to Financing of Infrastructure - Definition of 'Infrastructure Lending'.
Government of India, vide its Gazette Notification dated October 7, 2013 has updated the Harmonised Master List of Infrastructure sub-sectors and the following new sub-sectors have been added in the Master List:
Hotels with project cost of more than Rs.200 crores each in any place in India and of any star rating.
Convention Centres with project cost of more than Rs.300 crores each.
Accordingly, the extent definition of infrastructure loan given in the NBFC Prudential Norms Directions, 2007 stands amended as per RBI Circular RBI/2013-14/386 DNBS.PD.CC.No. 362/03.10.001/2013-14 dated November 29, 2013
RBIs earlier circulars: DNBS.(PD).CC.No.13/02.01/99-2000 dated June 30, 2000 specify the guidelines for entry of NBFCs into Insurance Business issued on June 09, 2000, and subsequent modification carried out vide Circular DNBS.(PD).CCX.No.35/10.24/2003-04 dated February 10, 2004 and CC No. 221/03.02.002/2010-2011 dated May 27, 2011.
As per the extant instructions issued on May 27, 2011, in case more than one company (irrespective of doing financial activity or not) in the same group of the NBFC wishes to take a stake in the insurance company, the contribution by all companies in the same group shall be counted for the limit of 50 per cent equity investment in the Insurance JV company.
In the operation of Insurance Company, very often, the IRDA requires an insurance company to expand its capital taking into account the stipulations of the Insurance Act and the solvency requirements of the insurance company. The restriction of a group limit of the NBFC to 50% of the equity of the insurance JV company prescribed in the above mentioned circular may act as a constraint for the insurance company in meeting the requirement of IRDA.
On a review ,RBI has been decided that in cases where IRDA issues calls for capital infusion into the Insurance JV company, the Bank may, on a case to case basis, consider need based relaxation of the 50% group limit specified in CC No 221 dated May 27, 2011. The relaxation, if permitted, will be subject to compliance by the NBFC with all regulatory conditions specified in DNBS(PD) Cc.No.35/10.24/2003-04 dated February 10, 2004 and such other conditions as may be necessary in the specific case.
Application for such relaxation along with supporting documents may be submitted by the NBFC to the Regional Office of the Reserve Bank under whose jurisdiction its registered office is situated.
January 2, 2014