RBI tightens screws on foreign fund raising

Tightening screws on foreign fund raising, the Reserve Bank today banned domestic firms from raising such funds above the permitted levels and from extending guarantees for them to meet domestic funding needs.
Those not following the norms will face penal action under Fema, it said.
"Domestic companies or their banks/category I authorized dealers are not allowed to issue any direct or indirect guarantee or create any contingent liability or offer any security in any form for such borrowings by their overseas holding/associate/subsidiary/group companies except for the purposes explicitly permitted in the relevant regulations," it said in a circular this evening.

"Funds raised abroad by overseas holding/ associate/ subsidiary/group companies of domestic firms with support of their domestic companies or their category-I AD banks cannot be used here unless it conforms to the general or specific permission granted under the relevant regulations," it added.
Forex funds are cheaper than the rupee funds.
Essar group, Reliance Industries and Reliance Anil Ambani group and others have been tapping up forex debt market to repay rupee loans or to meet other capex needs in recent years.

Reliance Jio last week tied up USD 1.5 billion worth of dollar loans, while Essar group yesterday raised USD 1 billion through the ECB route.

Over the weekend the RBI data showed that India Inc's foreign borrowing soared 44 per cent to USD 2.78 billion in October. Of this only USD 69.43 million came through approval route and the rest USD 2.71 billion through automatic route.
As many as 56 companies raised money from automatic route while three firms raised funds via the approval route. The largest amount raised under the automatic route was Tata Motors' USD 750 million for rupee expenditure and refinancing of earlier ECB and Reliance Jio Infocomm USD 1.5 billion for rupee expenditure.
RBI circular said that it had come to its notice that overseas borrowings "are raised at rates exceeding the ceiling applicable in terms of extant Fema norms and that the funds so raised are routed to the domestic companies which accounts for sole/major operations of the group.