RBI clamps down on offshore refinancing
RBI clamps down on offshore refinancing
SINGAPORE (IFR) - India has taken steps to clamp down on the growing trend among banks to convert rupee exposure into overseas debt in a move likely to trigger a rise in onshore restructurings.
In a notice issued on Tuesday evening, the Reserve Bank of India warned that Indian banks should not lend through their overseas branches or issue any kind of credit guarantee to help companies repay their rupee obligations with offshore debt.
The notice comes as the RBI is forcing banks to deal with stressed loans by restricting the practice of "evergreening", a common term for refinancing, rather than restructuring non-performing loans.
"The amount of non-performing loans in the Indian banking system is grossly understated due to 'greening' of loans," said Sanjay Guglani, CIO of Singapore-based Silverdale Capital. "The RBI notification is a step in right direction to curb the misuse of offshore borrowing by Indian corporates to service rupee obligations."
DEALS DERAILED
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 are backing new offshore 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.
Market participants expect the RBI's move to have an impact on several financings in the market that feature standby letters of credit from Indian lenders.
Source >> Reuteres India
Thanking you
Regards,
Rajesh Kumar Kathpalia ¤ SMC Global
17,Netaji Subhash Marg,Daryaganj,
New Delhi-110002 Mobile No 9891645052
Email Id: rajesh.ipo@smcindiaonline.com
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SINGAPORE (IFR) - India has taken steps to clamp down on the growing trend among banks to convert rupee exposure into overseas debt in a move likely to trigger a rise in onshore restructurings.
In a notice issued on Tuesday evening, the Reserve Bank of India warned that Indian banks should not lend through their overseas branches or issue any kind of credit guarantee to help companies repay their rupee obligations with offshore debt.
The notice comes as the RBI is forcing banks to deal with stressed loans by restricting the practice of "evergreening", a common term for refinancing, rather than restructuring non-performing loans.
"The amount of non-performing loans in the Indian banking system is grossly understated due to 'greening' of loans," said Sanjay Guglani, CIO of Singapore-based Silverdale Capital. "The RBI notification is a step in right direction to curb the misuse of offshore borrowing by Indian corporates to service rupee obligations."
DEALS DERAILED
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 are backing new offshore 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.
Market participants expect the RBI's move to have an impact on several financings in the market that feature standby letters of credit from Indian lenders.
Source >> Reuteres India
Thanking you
Regards,
Rajesh Kumar Kathpalia ¤ SMC Global
17,Netaji Subhash Marg,Daryaganj,
New Delhi-110002 Mobile No 9891645052
Email Id: rajesh.ipo@smcindiaonline.com
--
You received this message because you are subscribed to the Google Groups "Product Updates for AMC" group.
To unsubscribe from this group and stop receiving emails from it, send an email to Productupdatesforamc+unsubscribe@googlegroups.com.
For more options, visit https://groups.google.com/d/optout.
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