What changed
Previously, non-resident investors could pledge shares only to banks. Now, AD Category-I banks can also permit pledges in favour of NBFCs (listed or unlisted) for bonafide business purposes. Only equity shares listed on a recognised stock exchange in India are eligible for such pledges.
What it means for you
This delegation reduces transaction time and rationalises the process for NBFCs to accept pledges from non-resident investors. Banks must ensure compliance with credit concentration norms and obtain both ex-ante board resolution and ex-post auditor certificate. Any breach of concentration norms on invocation must be rectified within 30 days.
What you must do
- Update internal policies to process requests for pledge of shares by non-resident investors in favour of NBFCs.
- Obtain ex-ante board resolution from the investee company confirming loan proceeds use.
- Obtain ex-post certificate from statutory auditor confirming utilisation of loan proceeds.
- Ensure pledged shares are listed on a recognised stock exchange and monitor credit concentration norms.
- Advise customers and constituents about the new delegated powers and compliance requirements.
Who it affects
AD Category-I banks, Non-Banking Financial Companies (NBFCs), Non-resident investors holding equity shares of Indian companies, Resident investee companies
Can unlisted shares be pledged under this circular?
No, only equity shares listed on a recognised stock exchange in India can be pledged in favour of NBFCs.
What happens if credit concentration norms are breached on invocation of pledge?
The shares must be sold and the breach rectified within 30 days from the date of invocation.
Do we need any documentation from the investee company?
Yes, an ex-ante board resolution and an ex-post certificate from the statutory auditor are required.