RBI tightens screws on foreign fund-raising

Tightening screws on foreign fund raising, the Reserve Bank on Tuesday 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, RIL 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.