What changed
Previously, banks could only sanction term loans for overseas equity acquisition under EXIM Bank's refinance scheme. Now, banks can directly extend financial assistance for such acquisitions based on a Board-approved policy incorporated into the loan policy, without requiring EXIM Bank approval.
What it means for you
Banks gain flexibility to support Indian companies' global expansion through strategic overseas investments. This opens a new lending avenue, but requires robust internal policies to manage risks like cross-border exposure, currency fluctuations, and compliance with Section 19(2) of the Banking Regulation Act.
What you must do
- Formulate a Board-approved policy for financing overseas equity acquisitions, covering overall limits, borrower eligibility, security, and margin.
- Ensure the policy is incorporated into the bank's loan policy document.
- Verify compliance with Section 19(2) of the Banking Regulation Act, 1949 for each such advance.
- Assess the strategic benefit of the acquisition to the company and the country before sanctioning.
Who it affects
All scheduled commercial banks (excluding RRBs and LABs), Indian companies seeking to acquire equity in overseas entities, Bank boards and credit policy teams
Can we now finance any overseas equity acquisition without EXIM Bank involvement?
Yes, provided the bank has a Board-approved policy covering overall limits, borrower eligibility, security, and margin. The acquisition must be beneficial to the company and the country.
What statutory requirements must we comply with for such financing?
The finance must comply with Section 19(2) of the Banking Regulation Act, 1949, which restricts banks from holding shares in any company beyond certain limits.