Foreign Investors Free To Pledge Indian firms' shares: RBI.

In order to encourage foreign direct investment in the country, the RBI today relaxed the norms and allowed overseas investors to raise funds by pledging shares of Indian companies to banks without its permission.

Following a notification issued by the RBI, the authorised dealer banks on their own can allow foreign investors to pledge shares of Indian companies in favour of a domestic bank or an overseas bank to secure credit. Earlier, such transactions required permission of the Reserve Bank of India (RBI).

"It has been decided to further liberalise, rationalise and simplify the processes associated with FDI flows to India and reduce transaction time," the RBI said.

Accordingly, the RBI said it has been decided to delegate powers to the authorised dealer category-I banks to allow pledge of shares of an Indian company held by non-resident investors in accordance with FDI policy.

However, such transactions will have to be within the framework of the FDI policy. FDI in India declined by 25 per cent to $18.35 billion during April-February from $24.6 billion in the same period of the previous fiscal.

Further, in an another notification, the RBI allowed banks to open and maintain, without its prior approval, escrow accounts on behalf of residents and non-residents, towards payment of share purchase for keeping securities to facilitate FDI transactions.

The escrow account, however, would be maintained in Indian rupee and it should be non-interest bearing. Escrow mechanism facilitates FDI transactions in cases where parties to the share purchase agreement desire to complete the due diligence process before they finalise the agreement.

Source : profit.ndtv.com