7 February 2019: The Reserve Bank of India (RBI) has made a special provision for companies bidding for stressed firms under the insolvency and bankruptcy code (IBC) with a view to make funds cheaper for such companies.
RBI said bidding companies can now raise foreign currency funds through foreign banks abroad and use these proceeds to repay the bank debt for stressed companies which they are looking to buy. In the new external commercial borrowing (ECB) guidelines announced last month, RBI had not permitted foreign funds to repay rupee loans, so this announcement is seen as a special provision to speed up resolution under the IBC.
“The resolution applicants under Corporate Insolvency Resolution Process (CIRP) under Insolvency and Bankruptcy Code (IBC), 2016 may find it attractive to borrow abroad to repay the existing lenders. In view of the above, it is proposed to relax the end-use restrictions under the approval route of the ECB framework for resolution applicants under the CIRP and allow them to utilise the ECB proceeds for repayment of rupee term loans of the target company,” RBI said.
However, the only caveat the central bank added was that such loans cannot be availed from overseas branches or subsidiaries of Indian banks. Guidelines in this regard will be issued by the end of February 2019.