DBOD.No. IBS.BC.104/23.37.001/98-99

November 12, 1998

Kartika 21, 1920 (Saka)

Chairmen/Chief Executives of all Commercial Banks

(excluding Regional Rural Banks)

Dear Sir,

Extension of credit/non-credit facilities to indian joint ventures/wholly owned subsidiaries abroad and extension of buyer's credit and acceptance finance to overseas parties by banks in India

It has been decided to allow banks to extend credit/non-credit facilities (viz. letters of credit and guarantees) to Indian Joint Ventures/Wholly Owned Subsidiaries abroad. Banks are also permitted to provide at their discretion, buyer's credit/acceptance finance to overseas parties for facilitating export of goods and services from India. The above exposures will, however be subject to a limit of 5% of the unimpaired Tier-1 capital. Higher limits could be considered by Reserve Bank on merits. While extending such facilities banks should comply with the following conditions :

(i) Loans will be granted to only those joint ventures where the holding by the Indian company is more than 51%.

(ii) Proper systems for management of credit and interest rate risks arising out of such cross border lending are in place.

(iii) Section 25 of the B.R. Act, 1949 is complied with.

(iv) The resource base for such lendings should be funds held in foreign currency accounts such as, FCNR(B), EEFC, RFC etc. in respect of which banks have to manage the exchange risk.

(v) Maturity mismatches arising out of such transactions are within the overall gap limits approved by RBI and

(vi) All existing safeguards / prudential guidelines relating to capital adequacy , exposure norms etc. applicable to domestic credit / non-credit exposures are adhered to.

2. The banks should , with the approval of the Board , frame a proper loan policy for extending such credit / non-credit facilities , keeping in view, inter-alia , the following :

a) Grant of such loans are based on proper appraisal and commercial viability of the projects and not merely on the reputation of the promoters backing the the projects. Extension of non-fund based facilities should be subjected to the same rigorous scrutiny as fund based limits.

b) The countries where the joint ventures / wholly owned subsidiaries are located should have no restrictions applicable to these companies in regard to obtaining foreign currency loans or for repatrition etc. and should permit non-resident banks to have legal charge on securities / assets abroad and the right of disposal in case of need.

3.A half-yearly Review Report as at 31 ^st March and 30 ^th September of credit / non-credit facilities extended as per this circular may be put up to the Board of Directors. A copy of the Report may be forwarded to us for our information.

4. Please acknowledge receipt.

Yours faithfully,

Devaki Muthukrishnan

General Manager