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The Reserve Bank of India (RBI) has further eased the external commercial borrowing (ECB) norms for banks for issuing ‘no objection’ under the Foreign Exchange Management Act (FEMA), 1999.
As per the new relaxed norms, the banks can issue ‘no objection’ as part of corporate guarantee in favour of the overseas lessee and to operate lease for import of aircraft, helicopters and engines.
The RBI, has however clarified that the ‘no objection’ should be issued only under the provisions of Fema, 1999 and should not be construed as an approval by any other statutory authority.
Further, the RBI has also made it clear that the ‘no objection’ should not be used for regularising or validating any irregularities, contravention or other lapses, if any, under the provisions of Fema or any other laws or regulations. Consequently, the amendment to the Fema will be done with immediate effect.
Till now, banks were allowed to issue ‘no objection’ to companies and entities to create charge on immovable assets, financial securities and to issue corporate or personal guarantees in favour of overseas lenders, to secure the ECB to be raised by the borrower. This relaxation was made in 2008.
Before that, the rules regarding ECBs were relaxed only to permit the banks to allow payment of lease rentals, open letters of credit towards security deposit, etc in respect of import of aircraft/aircraft engine/helicopter on operating lease basis.
The ‘no objection’ to the Indian importer for issue of corporate guarantee may be conveyed after obtaining board resolution for issue of corporate guarantee from the company issuing such guarantees and after specifying names of the officials authorised to execute such guarantees on behalf of the firm. Business Standard
April 21, 2009
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