| Trustman & Co.

| Trustman & Co.: The Union Cabinet chaired by the Hon’ble Prime Minister Shri Narendra Modi ji, has given its nod to the “Stand Up India Scheme” to promote entrepreneurship among SC/ST and Women entrepreneurs. The Scheme is intended to facilitate at least two such projects per bank branch, on an average one for each category of entrepreneur. The …

overseas subsidiaries of Indian companies

In reference to the circular DBOD.IBD.BC.No.96/23.37.001/2006-07 dated May 10, 2007 permitting banks in India to extend funded and/or non-funded credit facilities to step-down subsidiaries of the overseas subsidiaries of Indian companies that may not be wholly owned, subject to certain conditions. RBI has revived the above instructions and modified the same which are mentioned below.

Modified norms

·        Banks may extend funded and/or non-funded credit facilities to the step-down subsidiaries of Indian companies including to those beyond the first level, to finance the projects undertaken abroad.

·        The immediate overseas subsidiary of the Indian company must be directly controlled by the Indian parent company through any of the modes of control recognised under the Indian Accounting Standards. As per the Indian Accounting Standards, control has been defined as (a) the ownership, directly or indirectly, through subsidiary(ies), of more than one-half of the voting power of an enterprise; or (b) control of the composition of the board of directors in the case of a company or of the composition of the corresponding governing body in case of any other enterprise so as to obtain economic benefits from its activities. In addition, the Indian parent company must directly hold a minimum 51% of its shareholding.

·        All the step-down subsidiaries, including the intermediate ones, must be wholly owned subsidiary of the immediate parent company or its entire shares shall be jointly held by the immediate parent company and the Indian parent company and / or its wholly owned subsidiary. The immediate parent should, wholly or jointly with Indian parent company and / or its wholly owned subsidiary, have control over the step-down subsidiary.

·        Banks shall make additional provision of 2% (in addition to country risk provision that is applicable to all overseas exposures) against standard assets representing all exposures to the step-down subsidiaries, to cover the additional risk arising from complexity in the structure, location of different intermediary entities in different jurisdictions exposing the Indian company, and hence the bank, to greater political and regulatory risk.