The Reserve Bank of India (RBI) on Friday modified norms for banks to extend credit facilities to overseas step-down subsidiaries of Indian corporates to finance the projects undertaken abroad.
The RBI has reviewed its 2007 instructions permitting banks in India to extend funded and/or non-funded credit facilities to step-down subsidiaries of the overseas arms of Indian companies and come out with modified norms.
“Banks may extend funded and/or non-funded credit facilities to the step-down subsidiaries of Indian companies including to those beyond the first level, to finance the projects undertaken abroad,” the modified norms said.
The immediate overseas subsidiary of the Indian company, the RBI added, must be directly controlled by the Indian parent company through any of the modes of control recognised under the Indian Accounting Standards.
“In addition, the Indian parent company must directly hold a minimum 51% of its shareholding,” the modified instructions said.
The RBI also asked the banks to make an additional provision of 2% in addition to country risk provision applicable to all overseas exposures, against standard assets representing all exposures to step-down subsidiaries.