Earlier banks were permitted to offer credit/non credit facilities to Indian Joint Ventures (JVs)/ Wholly Owned Subsidiaries (WOS) abroad up to 10% of the bank’s unimpaired capital funds (Tier I and Tier II) on the following conditions:
- Loans would be granted only to those joint ventures where the holding of the Indian company was more than 51%.
- Proper systems were in place for the management of credit and interest rate risks arising out of such cross border lending.
- The resource base for such lending should be funds held in foreign currency accounts such as Foreign Currency Non Resident (B) account, Exchange Earners’ Foreign Currency account, Resident Foreign Currency account etc. in respect of which banks manage exchange risk.
- Maturity mismatches arising out of such transactions are within the overall gap limits approved by Reserve Bank of India.
- All existing safeguards / prudential guidelines relating to capital adequacy, exposure norms etc. applicable to domestic credit / non-credit exposures are adhered to.
With a view to facilitate expansion of the business of Indian corporates abroad, the prudential limit of credit and non-credit facilities extended to Indian JVs / WOS abroad by banks has now been enhanced from the existing 10% to 20% of the unimpaired capital funds (Tier I and Tier II) of the bank.
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