RBI bars banks from giving loans against IDRs

The Reserve Bank of India (RBI) today asked banks not to extend loans against Indian depository receipts (IDRs) issued by foreign companies.

IDRs are rupee-dominated depository receipts issued by foreign companies to raise funds in India. These receipts are then listed on Indian stock exchanges. They are similar to American depository receipts (ADRs), through which Indian companies raise resources abroad.

"The matter regarding the extension of finance for subscription to IDRs and loans has been examined. It has been decided that no bank should grant any loan or advance for subscription to IDRs. Also, no bank should grant any loan or advance against security or collateral of IDRs issued in India," RBI said in a notification.

Foreign-based companies were allowed to issue IDRs through a domestic depository, after an amendment in the norms in 2006. So far, UK-based Standard Chartered is the only company to issue IDRs. According to the norms, the proceeds of the issue are to be deployed outside India by the companies issuing such instruments.