So far, FPIs were allowed only to invest up to 20% of the bond market holdings in a single corporate bond issue
For a faster turnaround in the resolution process for stressed loans that are referred to the National Company Law Tribunal (NCLT), Reserve Bank of India has allowed bidders to raise funds through external commercial borrowings (ECB) to repay the rupee loans of domestic banks.
Under the existing regulations, ECB is not permitted to be utilised for repayment or for repayment of domestic rupee loans.
"Our decision gives no room to fly-by-night operators to bring in money just for the sake of bringing in money. There are other openings of bringing in money. We have ECB route, we have FPI (foreign portfolio investor) route," RBI governor Shaktikanta Das said in a post-policy press conference.
"Indian banks' overseas branches or their subsidiaries are not eligible under this. However, this move is positive as it has opened up a new source of funds for the bidders. Earlier, the amount that the prospective bidders could raise was constrained by the large exposure framework applicable to Indian lenders. However, the ECB route has now put another group of lenders (foreign banks) into picture. This, in turn, might help in quick and faster resolution of domestic stressed assets," said SBI Ecowrap, the economic analysis report of the bank.
"Opening up the ECB route for applicants under the IBC (Insolvency and Bankruptcy Code) could facilitate a faster turnaround," said Rajnish Kumar, chairman State Bank of India.
So far, the funds that prospective bidders could raise were constrained by the large exposures or unpaid loans to Indian lenders.
"The resolution applicants under Corporate Insolvency Resolution Process (CIRP) under Insolvency and Bankruptcy Code (IBC), 2016 may find it attractive to borrow abroad to repay the existing lenders. It is proposed to relax the end-use restrictions under the approval route of the ECB framework for resolution applicants under CIRP and allow them to utilise the ECB proceeds for repayment of rupee term loans of the target company," RBI said in a statement.
To improve the liquidity for companies who raise money from the corporate debt market, RBI relaxed the foreign portfolio investment in the corporate bond market. So far, FPIs were allowed only to invest up to 20% of the bond market holdings in a single corporate bond issue. RBI on Thursday lifted this restriction. Now FPIs can decide how much they want to invest in the corporate bonds.
"As on 6th February 2019, the upper limit (limits of foreign investment in corporate bonds as per Securities and Exchange Board of India) for FPI stood at Rs 2,89,100 crore. The investment by FPIs as on 6th February 2019 stood at Rs 2,03,029 crore which is about 70% of the total upper limit," said SBI Ecowrap report.
20% – Cap on bond holdings of FPIs in a single corporate issue earlier
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