What changed
The earlier rule allowed corporate guarantees for step-down operating subsidiaries if the Indian party directly or indirectly held 51% or more stake. The amendment removes 'directly', so only indirect holding of 51% or more qualifies for the approval route.
What it means for you
Indian companies can no longer rely on direct shareholding to issue guarantees for deeper-tier overseas subsidiaries; only indirect ownership counts. Banks must verify the indirect holding structure strictly before processing such guarantees under the approval route.
What you must do
- Update internal ODI processing checklists to reflect the removal of 'directly' from the 51% holding condition.
- Train staff to verify indirect ownership chains for step-down subsidiary guarantees.
- Advise corporate clients to restructure holdings if they plan to issue guarantees for second-generation or lower subsidiaries.
- Review existing guarantee approvals to ensure compliance with the amended rule.
Who it affects
AD Category-I banks processing ODI guarantees, Indian companies with multi-tier overseas subsidiaries, Compliance teams handling foreign investment approvals
Does this circular affect guarantees for first-level overseas subsidiaries?
No, the amendment only applies to second generation or subsequent level step-down operating subsidiaries. First-level subsidiaries are not impacted.
What happens if an Indian party directly holds 51% but indirectly holds less than 51% in a step-down subsidiary?
Such guarantees will not qualify for the approval route under this circular, as only indirect holding is now considered.