In order to facilitate Rupee denominated borrowing from overseas, the Reserve Bank of India (RBI) has issued a framework for issuance of Rupee denominated bonds overseas within the comprehensive External Commercial Borrowing Policy (ECB) via notification dated September 29, 2015.
The detailed guidelines for issuance of Rupee denominated bonds overseas are set out below:
1. Eligibility of Borrowers:
Any corporate or body corporate is eligible to issue Rupee denominated bonds overseas. Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) coming under the regulatory jurisdiction of the Securities and Exchange Board of India are also eligible.
2. Type of Instrument
Only plain vanilla bonds issued in a Financial Action Task Force (FATF) compliant financial centres; either placed privately or listed on exchanges as per host country regulations.
3. Recognized Investors
Any investor from a FATF compliant jurisdiction is eligible. Banks incorporated in India will not have access to these bonds in any manner whatsoever. Indian banks, however, can act as arranger and underwriter. In case of underwriting, holding of Indian banks cannot be more than 5% of the issue size after 6 months of issue. Further, such holding shall be subject to applicable prudential norms.
4. Maturity
Minimum maturity period of such bonds shall be 5 years. The call and put option, if any, shall not be exercisable prior to completion of minimum maturity.
5. All-in-cost
The all-in-cost of such borrowings should be commensurate with prevailing market conditions. This will be subject to review by the RBI.
6. End uses
The proceeds can be used for all purposes except a negative list viz. as follows:
i. Real estate activities other than for development of integrated township / affordable housing projects;
ii. Investing in capital market and using the proceeds for equity investment domestically;
iii. Activities prohibited as per the foreign direct investment (FDI) guidelines;
iv. On-lending to other entities for any of the above objectives; and
v. Purchase of land.
7. Amount
Under the automatic route the amount will be equivalent of USD 750 million per annum. Cases beyond this limit will require prior approval of the Reserve Bank.
8. Conversion rate
The foreign currency - Rupee conversion will be at the market rate on the date of settlement for the purpose of transactions undertaken for issue and servicing of the bonds.
9. Hedging
The overseas investors will be eligible to hedge their exposure in Rupee through permitted derivative products with AD Category - I banks in India. The investors can also access the domestic market through branches / subsidiaries of Indian banks abroad or branches of foreign bank with Indian presence on a back to back basis.
10. Leverage
The leverage ratio for the borrowing by financial institutions will be as per the prudential norms, if any, prescribed by the Regulator of the concerned sector.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
