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Banks can finance SPVs floated for PSU divestment: RBI
Mumbai, Mar 23: Reserve Bank of India today said the commercial banks can now finance the Special Purpose Vehicles (SPVs) floated by corporates to participate in public sector disinvestment.
Mumbai, Mar 23: Reserve Bank of India today said the commercial banks can now finance the Special Purpose Vehicles (SPVs) floated by corporates to participate in public sector disinvestment.
Such SPVs will have to be holding companies; they cannot trade in these securities except for block sale and also are barred from undertaking any other financial activities, RBI said in a notification to the commercial banks here.
These SPVs would not be treated as investment companies and therefore would not be considered as Non Banking Finance Companies (NBFCS). Banks are restricted from financing investments of NBFCS in other companies, it said.
Banks planning to finance these entities should ask these entities to furnish a "letter of waiver" from the government for disposing off PSU shares during the lock-in-period. The pact by the corporates with government should include a provision that permits liquidation of the shares during the lock-in period, in case of shortfall in margin requirement or default by the borrower, RBI said.
According to conditions set for the PSU disinvestment the bank would not be allowed to invoke the pledge during the first year of the lock-in period.
RBI said banks have right to invoke the pledge in the second and third year of the lock-in period for reasons like borrowers' failure to stick to repayment schedule. The bank's right to invoke the pledge would be subject to the conditions specified in the documentation, between government and the successful bidder, casting responsibilities on the pledgee banks, it added. Bureau Report
These SPVs would not be treated as investment companies and therefore would not be considered as Non Banking Finance Companies (NBFCS). Banks are restricted from financing investments of NBFCS in other companies, it said.
Banks planning to finance these entities should ask these entities to furnish a "letter of waiver" from the government for disposing off PSU shares during the lock-in-period. The pact by the corporates with government should include a provision that permits liquidation of the shares during the lock-in period, in case of shortfall in margin requirement or default by the borrower, RBI said.
According to conditions set for the PSU disinvestment the bank would not be allowed to invoke the pledge during the first year of the lock-in period.
RBI said banks have right to invoke the pledge in the second and third year of the lock-in period for reasons like borrowers' failure to stick to repayment schedule. The bank's right to invoke the pledge would be subject to the conditions specified in the documentation, between government and the successful bidder, casting responsibilities on the pledgee banks, it added. Bureau Report