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RESERVE BANK OF INDIA (RBI)

1. Revision in Bank Rate and change in Bank Rate: RBI has vide its two Circulars dated 15th January, 2015 announced that the bank rate has adjusted from 9% to 8.75% w.e.f January 15, 2015. All penal interest rates linked to the Bank Rate are also revised as follows:
Item Existing Rate Revised Rate
Penal interest rates on shortfalls in reserve requirements (depending on duration of shortfalls) Bank Rate plus 3.0 percentage points (12.00 per cent) or Bank Rate plus 5.0 percentage points (14.00 per cent) Bank Rate plus 3.0 percentage points (11.75 per cent) or Bank Rate plus 5.0 percentage points (13.75 per cent)
2. Non-resident guarantee for non-fund based facilities entered between two resident entities: RBI has vide its Circular No. 55 dated 6th January, 2015, clarified that resident entities which are subsidiaries of multinational companies can also hedge their foreign currency exposure through permissible derivative contracts executed with AD Category – I bank in India on the strength of guarantee of its non-resident group entity. 3. Security for External Commercial Borrowings: RBI has vide its Circular No. 55 dated 1st January, 2015, decided that AD banks may allow creation of charge on immovable assets, movable assets, financial securities and issue of corporate and / or personal guarantees in favour of overseas lender / security trustee, to secure the ECB to be raised / raised subject to the following:
  • the underlying ECB is in compliance with the extant ECB guidelines
  • there exists a security clause in the Loan Agreement requiring the ECB borrower to create charge, in favour of overseas lender / security trustee, on immovable assets / movable assets / financial securities / issuance of corporate and / or personal guarantee, and
  • no objection certificate, wherever necessary, from the existing lenders in India has been obtained.
4. Overseas Direct Investments by Indian Party – Rationalization / Liberalization: RBI has vide its Circular No.54 dated 29th December, 2014, decided to liberalize certain regulations as given below in respect of Overseas Direct Investments by Indian Party – Rationalization / Liberalization:
  • Creation of charge on shares of JV / WOS / step down subsidiary (SDS) in favour of domestic / overseas lender: The designated AD bank may permit the creation of charge / pledge on the shares of the JV / WOS / SDS of an Indian party in favour of a domestic or overseas lender for securing the funded and / or non-funded facility to be availed of by the Indian party or by its group companies / sister concerns / associate concerns or by any of its JV / WOS / SDS under the automatic route subject to certain conditions as specified.
  • Creation of charge on the domestic assets in favour of overseas lenders to the JV / WOS / step down subsidiary: The designated AD bank may permit the creation of charge (by way of pledge, hypothecation, mortgage, or otherwise) on the domestic assets of an Indian party (or its group companies / sister concerns / associate concerns including the individual promoters / directors) in favour of an overseas lender for securing the funded and / or non-funded facility to be availed of by the JV / WOS / SDS of the Indian party under the automatic route subject to certain conditions as specified.
  • Creation of charge on overseas assets in favour of domestic lender: The designated AD bank permits the creation of charge (by way of hypothecation, mortgage, or otherwise) on the overseas assets (excluding the shares) of the JV / WOS / SDS (irrespective of the level) of an Indian party in favour of a domestic lender for securing the funded and / or non-funded facility to be availed of by the Indian party or by its group companies / sister concerns / associate concerns or by any of its overseas JV / WOS / SDS (irrespective of the level) under the automatic route subject to certain conditions as specified.
 
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