Helping Hand To IBC: New RBI Regulations Allow Bidders To Access Foreign Capital To Pay Bankrupt Indian Firms

Reserve Bank of India (RBI) has relaxed regulations and allowed bidders participating in the resolution process of insolvent firms to raise money outside of India through External Commercial Borrowings (ECB) to pay for such companies.

Presently, as per the extant ECB framework, ECB proceeds denominated in either foreign currency or Indian Rupee cannot be utilised for repayment or on-lending for repayment of domestic Rupee loans.

“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,” said an RBI release.

However, such ECBs could be obtained from all eligible lenders under the extant ECB framework except from overseas branches/subsidiaries of Indian banks. RBI will issue full guidelines by the end of this month (February 2019).

Fastrack Insolvency

This move will help fastrack the resolution process under IBC by helping bidders to access foreign capital rather than rely only on domestic banking sectors which is currently stressed due to IL&FS crisis, debt defaults by other corporations, and high non-performing assets (NPAs).

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