Bank Loans for Financing Promoters Contribution
The promoters’ contribution towards the equity capital of a company should come from their own resources and the bank should not normally grant advances to take up shares of other companies. However, banks are permitted to extend loans to corporate against the security of shares (as far as possible in dematerialised form) held by them to meet the promoters’ contribution to the equity of new companies in anticipation of raising resources subject to the following terms and conditions and as detailed in the loan policy of the bank, in addition to the general guidelines given in para 2.3.1.14 of the Master Circular on Loans and Advances – Statutory and Other restrictions dated July 1, 2015.
i) The margin and period of repayment of the loans may be determined by the banks.
ii) Loans sanctioned to corporates against the security of shares (as far as possible, demat shares) for meeting promoters’ contribution to the equity of new companies in anticipation of raising resources, should be treated as a bank’s investments in shares which would thus come under the ceiling of 40 percent of the bank’s net worth as on March 31 of the previous year prescribed for the bank’s total exposure including both fund based and nonfund based to capital market in all forms. These loans will also be subject to individual/group of borrowers exposure norms as well as the statutory limit on shareholding in companies, as detailed in the Master Circular RBI/2015- 16/70 DBR.No.Dir.BC.12/13.03.00/2015-16 dated July 1, 2015 on Exposure Norms.
iii) Banks may extend financial assistance to Indian companies for acquisition of equity in overseas joint ventures / wholly owned subsidiaries or in other overseas companies , new or existing, as strategic investment, in terms of Board approved policy, duly incorporated in the loan policy of the banks. Such policy should include overall limit on such financing, terms and conditions of eligibility of borrowers, security, margin, etc. The finance would be subject to compliance with the statutory requirements under Section 19(2) of the Banking Regulation Act, 1949.
iv) The restriction on grant of bank advances for financing promoters’ contribution towards equity capital would also extend to bank finance to activities related to such acquisitions like payment of non-compete fee, etc. Further, these restrictions would also be applicable to bank finance to such activities by overseas branches / subsidiaries of Indian banks.
v) With the approval of the Board of Directors, the banks should formulate internal guidelines with appropriate safeguards for this purpose.
vi) Under the refinance scheme of Export-Import Bank of India, the banks may sanction term loans on merits to eligible Indian promoters for acquisition of equity in overseas joint ventures / wholly owned subsidiaries, provided the term loans have been approved by the EXIM Bank for refinance