Can a Indian Company can extend loan or guarantee to its WOS or JV Company in Abroad?

An Indian Company can extend loan  to its JV / WOS and 100 per cent of guarantees issued to or on behalf of the JV/WOS.

The investments are subject to the following conditions:

a) The Indian party / entity may extend loan / guarantee only to an overseas concern in which it has equity participation. Indian entities may offer any form of guarantee - corporate or personal / primary or collateral / guarantee by the promoter company / guarantee by group company, sister concern or associate company in India provided that:

i) All financial commitments including all forms of guarantees are within the overall ceiling prescribed for overseas investment by the Indian party i.e. currently within 400 per cent of the net worth as on the date of the last audited balance sheet of the Indian party;

ii) No guarantee is 'open ended' i.e. the amount and period of the guarantee should be specified upfront; and

iii) As in the case of corporate guarantees, all guarantees are required to be reported to the Reserve Bank, in Form ODI-Part II. Guarantees issued by banks in India in favour of WOSs / JVs outside India, would be outside this ceiling and would be subject to prudential norms, issued by the Reserve Bank (DBOD) from time to time.

The Indian party should not be on the Reserve Bank’s Exporters' caution list / list of defaulters to the banking system circulated by the Reserve Bank / Credit Information Bureau (India) Ltd. (CIBIL) / or any other credit information company as approved by the Reserve Bank or under investigation by any investigation / enforcement agency or regulatory body.

All transactions relating to a JV / WOS should be routed through one branch of an Authorised Dealer bank to be designated by the Indian party.