Thursday, May 15, 2014

RBI curbs Banks from extending Guarantees, ‘Letters of Comfort’ to Overseas Arms of Firms

The Reserve Bank of India (RBI) imposed restrictions on non-fund based credit facilities guarantees, stand-by letters of credit, letters of comfort, and so on, extended by banks to Indian companies’ overseas arms. Further, the central bank disallowed repayment of rupee loans taken from the domestic banking system through external commercial borrowings (ECBs) extended by overseas branches/ subsidiaries of Indian banks. The overseas arms of India companies include joint ventures, wholly-owned subsidiaries, and wholly-owned step-down subsidiaries. The RBI directed banks, including their overseas branches/ subsidiaries, not to issue non-fund based credit facilities on behalf of overseas arms of Indian companies for the purpose of raising loans/ advances of any kind from other entities except in connection with the ordinary course of overseas business.

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