What changed
RBI now allows Indian parties to create charges (pledge/mortgage/hypothecation) on their immovable/movable property and financial assets for overseas JV/WOS, subject to RBI approval under the approval route and submission of a no-objection certificate from the Indian party's and their group companies' Indian lenders. Bank guarantees issued by resident banks on behalf of JV/WOS, backed by a counter-guarantee or collateral by the Indian party, will count toward financial commitment limits. Personal guarantee permission is extended to indirect resident individual promoters. Indian parties can now apply for financial commitment without equity contribution in JV/WOS under approval route, provided host country laws permit. Annual Performance Report submission is relaxed only where host country law does not mandate auditing, with certification by Indian party's statutory auditors and board ratification.
What it means for you
Banks must update their processes to capture new financial commitment types (charges on assets, bank guarantees) and report them accurately. The liberalisation gives Indian corporates more flexibility to fund overseas ventures, potentially increasing demand for bank guarantees and advisory services. Lenders need to ensure proper documentation and no-objection certificates for charge creation, and monitor compliance with the 400% financial commitment limit.
What you must do
- Update internal systems to track and report bank guarantees and asset charges as part of financial commitment calculations.
- Advise clients on the new approval route for financial commitment without equity, ensuring host country legal compliance.
- Require no-objection certificates from Indian lenders of the Indian party and their group companies before processing charge creation proposals.
- Train staff on revised Annual Performance Report submission rules for JV/WOS where host country audit is not mandatory, ensuring statutory auditor certification and board ratification.
Who it affects
Category-I Authorised Dealer Banks, Indian parties making overseas direct investments, Promoters (direct and indirect) of Indian parties, Lenders to Indian parties and their group companies
What is the new rule for bank guarantees in financial commitment?
Bank guarantees issued by a resident bank on behalf of an overseas JV/WOS, backed by a counter-guarantee or collateral from the Indian party, will now be counted toward the financial commitment limit. Banks must report these guarantees accordingly.
Can Indian parties now create charges on assets for overseas investments?
Yes, but only with RBI approval under the approval route and within the overall financial commitment limit (presently 400%). The Indian party and its group companies must submit a no-objection certificate from their Indian lenders.
What changes for personal guarantees by promoters?
The general permission for personal guarantees is extended to indirect resident individual promoters, under the same conditions as direct promoters. This provides more flexibility for funding overseas ventures.