RBI/2010-11/214
DBOD.No.BP.BC.42 /21.04.141/2010-11
September 27, 2010
The Chairmen and Managing Directors/
Chief Executive Officers of
All Commercial Banks
(excluding Regional Rural Banks)
Dear Sir/Madam,
Bank loans for financing promoters contribution
In terms of para 8 of Master Circular No. DBOD.Dir.BC.90/13.07.05/98 dated
August 28, 1998 on ‘Bank Finance against Shares and Debentures’, promoters’
contribution towards the equity capital of a company should come from their own
resources and banks should not normally grant advances to take up shares of
other companies (A few exceptions have been made viz. allowing banks to extend
financial assistance to Indian companies for acquisition of equity in overseas
joint ventures / wholly owned subsidiaries or in other overseas companies, to
successful bidders for acquisition of shares of the PSUs under the Government of
India's disinvestment programme, etc.).
- In this connection, we advise that the above mentioned 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.
- It is further advised that these restrictions would also be applicable to
bank finance to such activities by overseas branches/subsidiaries of Indian
banks.
Yours faithfully,
(B. Mahapatra)
Chief General Manager –in-Charge