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The Reserve Bank of India (RBI) has eased the external commercial borrowing norms to allow bidders under the Insolvency and Bankruptcy Code (IBC) to raise funds abroad to pay the debtor back home.
However, the RBI has restricted resolution applicants from raising funds from the foreign branches of Indian banks.
The move comes as a relief for bidders who can use the new funding route to acquire stressed assets under the IBC.
Uday Bhansali, President (Financial Advisory), Deloitte India, said bidders, of late, have expressed interest to source funding from abroad in some of the insolvency cases, and the RBI move brings in more clarity.
The resolution applicants under the Corporate Insolvency Resolution Process (CIRP), under the Insolvency and Bankruptcy Code, 2016, may find it attractive to borrow abroad to repay the existing lenders, the RBI said in a statement on Thursday.
Rupee-term loans
Subsequently, the central bank has relaxed the end-use restrictions under the approval route of the ECB framework for resolution applicants under the CIRP and allow them to utilise the ECB proceeds for repayment of rupee-term loans of the target company.
ECBs can be availed from all eligible lenders, except from overseas branches or subsidiaries of Indian banks. Guidelines in this regard will be issued by the end of February 2019, the RBI said. Babu Sivaprakasam, Partner, Economic Laws Practice, said the move will de-stress the Indian banking system, as in most cases, the winning bidder of stressed assets raises funds from the domestic banking system, and the quantum of risk remains within the system. By allowing bidders to raise funds abroad, domestic lenders may have capital to deploy in fresh businesses, he said. It will also help Indian companies bidding for stressed assets raise funds abroad at a competitive rate with their good credit rating, he added.
With reduced cost of borrowing, bidders can now place aggressive bids and help banks realise more value for the asset, said Sivaprakasam.
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