Sectoral FDI caps will not come in way of corporate debt restructurings

NEW DELHI: Corporate debt restructuring (CDR) being undertaken by banks owned by non-residents will not be hit by sectoral foreign direct investment ( FDI) caps.

The move will help such banks to restructure loans of companies which are facing problems on account of economic slowdown and are unable to service their debts.

As per the press note issued by the Commerce and Industry ministry, the investments made by such banks as part of the CDR, loan restructuring and acquisitions of shares due to default in loans "shall not count towards indirect foreign investment".

However, it clarified that investments made by banks owned and controlled by non-residents in their subsidiaries and joint ventures would be treated as foreign investment.

"Downstream investments made by a banking company ... owned and/or controlled by non-residents, under CDR, or other loan restructuring mechanism, or in trading books, or for acquisition of shares due to defaults in loans, shall not count towards indirect foreign investment," it said.

The decision will take immediate effect, it said. The decision assumes importance as it will allow free hand to such banks in restructuring loans of companies without the fear of getting into a regulatory problems on account of sectoral FDI caps.

Under the existing provisions, downstream investment by an Indian company, owned and or controlled by non-residents, into another domestic company is subject to sectoral FDI caps.