Reserve bank of India has banned oversees branches and subsidiaries of Indian banks from providing dollar funding and issuing any kind of credit facilities if this funding is going to be used to refinance the rupee debt. Since June 2012 lot of infrastructure and manufacturing companies raised money offshore to convert their high cost rupee loan to low cost dollar loan.
Indian rules do not allow refinancing of rupee loans with foreign debt. However, in June 2012, manufacturing and infrastructure companies were granted an exemption as onshore interest rates spiked.
The fact that domestic Indian banks still back new loans, however, seems to have raised a red flag for the regulator, and the notice sends a clear sign that offshore refinancing will only be allowed if it does not involve additional liabilities for Indian banks.
“If the [external commercial borrowing] is availed from overseas branches/subsidiaries of Indian banks, the risk remains within the Indian banking system. It has, therefore, been decided that repayment of rupee loans through ECBs extended by overseas branches/subsidiaries of Indian banks will, henceforth, not be permitted,” the notice said.
Because of this decision lot of deals will be impacted. Now refinancing will happen onshore or this ban can be victory of international lenders who now will have upperhand in obtaining new business.
Market analyst believe that RBI’s move to have an impact on the syndication of several financings in the market that feature SBLCs (Stand by letter of Credit) from Indian lenders.
Indian rules do not allow refinancing of rupee loans with foreign debt. However, in June 2012, manufacturing and infrastructure companies were granted an exemption as onshore interest rates spiked.
The fact that domestic Indian banks still back new loans, however, seems to have raised a red flag for the regulator, and the notice sends a clear sign that offshore refinancing will only be allowed if it does not involve additional liabilities for Indian banks.
“If the [external commercial borrowing] is availed from overseas branches/subsidiaries of Indian banks, the risk remains within the Indian banking system. It has, therefore, been decided that repayment of rupee loans through ECBs extended by overseas branches/subsidiaries of Indian banks will, henceforth, not be permitted,” the notice said.
Because of this decision lot of deals will be impacted. Now refinancing will happen onshore or this ban can be victory of international lenders who now will have upperhand in obtaining new business.
Market analyst believe that RBI’s move to have an impact on the syndication of several financings in the market that feature SBLCs (Stand by letter of Credit) from Indian lenders.
No comments:
Post a Comment