Private banks with overseas control and ownership will now not have any difficulty in restructuring corporate debt due to Foreign Direct Investment norms (FDI). The Department of Industrial Policy and Promotion (DIPP) has relaxed the norms in this regard.

These revised norms will help the banks to restructure loans of companies which are facing problems due to the ongoing economic slowdown. These companies have been finding it difficult to get their debts serviced.

DIPP, in its new press note, said, “Downstream investment made by a banking company, which is owned and/or controlled by non-residents/a non-resident entity/non-resident entities, under Corporate Debt Restructuring (CDR), or other loan restructuring mechanism, or in trading books, or for acquisition of shares due to defaults in loans, will not count towards indirect foreign investment.”

However, their “strategic downstream investment” will count towards indirect foreign investment. For this purpose, “strategic downstream investments” would mean investment by these banking companies in their subsidiaries, joint ventures and associates, the note added. These decisions will take effect immediately.

The move will enable banks in restructuring loans of companies without any apprehension of getting entangled into regulatory problems due to FDI ceilings in various sectors.

According to the present norms, downstream investment by an Indian company, owned and or controlled by non-residents, into another domestic company would be counted towards indirect foreign investment. Thus such investment faces the danger of breaching the respective sectoral FDI cap.

>Shishir.sinha@thehindu.co.in

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