Rbi Widens Eefc Window
The Reserve Bank of India has relaxed overseas investment norms for forex earners by allowing banks to approve investments even without adequate funds in the exchange earners foreign currency accounts. This relaxation is under the EEFC fast track window scheme, whereby the maximum investment is $15 million.
The new RBI guidelines issued on August 7, 1998 permits banks to approve investments on the basis of the proposed investor's future projected earnings and past track record if EEFC funds are insufficient to meet the investment requirements.
Under the EEFC fast track window, investments up to $15 million in a block of three years was permitted out of EEFC balances. The ceiling covered equity, loan and 50 percent of contingent liabilities.
The earlier norms required the bank to ensure that the applicant maintained adequate balance in his EEFC account to fully cover the proposed investment as was projected in feasibility studies submitted by the applicant.
But under the revised guidelines, such a proposal can be approved of even in the case of insufficient EEFC balances subject to the following conditions.
The applicant's track record of earning in foreign exchange would signal the future accretions to the EEFC account by way of foreign exchange earnings.
These earnings must fully cover the proposed investment within the projected time-frame for implementation of the project, the notification said.
Secondly, the bank must ensure that the Indian promoter company's contribution towards the project cost can be made over a period of time without affecting the overall viability of the project.
The central bank has also eased norms with respect to setting up of second generation concerns by joint ventures or wholly owned subsidiaries set up under the EEFC Fast Track Window.
It has done away with a set of conditions which were to be satisfied earlier for the setting up of these companies, but has asked that the promoter keep it informed of the development.
The RBI clarified, though, that additional investments under the EEFC fast track window in an existing joint venture or subsidiary, existing guidelines regarding setting up of second generation company will apply.