SECTION 1: Market overview
1.1 Please provide an overview of the cross-border
financing market in your jurisdiction.
Cross-border financing in India can broadly be divided into
- Borrowings under the external commercial
borrowings (ECB) route from eligible foreign lenders;
- Issuance of non-convertible debentures
(NCDs) to foreign portfolio investors (FPIs) registered with
the Securities and Exchange Board of India (Sebi);
- Offshore financing to subsidiaries and
joint-ventures of Indian parties, guaranteed or secured by
the Indian party or its group entities (ODI financing)
- Offshore financing to offshore
shareholders of Indian companies secured by the shares of the
Indian company (FDI financing).
Each of these is subject to regulations prescribed by the
Reserve Bank of India (RBI) and also, in the case of NCDs and
any financing secured by listed shares, Sebi.
International banks have been active in the ECB and offshore
financing markets for a number of years. These have
traditionally included European and American banks as well as
(especially for ECBs) Japanese, Taiwanese, Australian and, more
recently, Chinese banks. A number of them also have FPI
entities which subscribe to NCDs.
1.2 What have been the key trends or developments in
cross-border financing in your jurisdiction over the past 12
As Indian banks are not permitted to provide acquisition
financing, a number of acquisitions have been financed by NCDs
subscribed to by FPIs and other domestic investors.
Similarly, since foreign-owned and controlled Indian
companies are not permitted to access the Indian rupee (INR)
debt market for domestic acquisitions, they have started to
explore the NCD route for financing downstream
1.3 Have there been interesting changes in the structure of
the banking sector in your jurisdiction?
The market has witnessed the entry of various alternative
credit providers such as mutual funds, distressed asset funds
and credit desks of private equity houses.
In the banking sector, the RBI has amended its policy on
universal banking licences by adopting an 'on tap' policy for
eligible applicants, under which resident professionals with
experience in banking are eligible to promote banks. Large
industrial houses are not permitted to promote banks but may
invest up to a prescribed threshold.
The RBI has also introduced the licensing of new categories
of Small Finance Banks and Payments Banks with the object of
furthering financial inclusion. Payments Banks are not
permitted to lend, but can accept demand deposits up to
prescribed limits and provide payment and remittance services.
Small Finance Banks can undertake the basic banking activities
of acceptance of deposits and lending to underserved sectors,
including micro and small industries and the unorganised
SECTION 2: Financing structures
2.1 Briefly outline some recent notable transactions
involving your jurisdiction, highlighting any interesting
aspects in their structures and what they might mean for the
In one of the largest acquisition transactions in the Indian
market, the Nirma group acquired the Indian cement assets of
LafargeHolcim. Given the restriction on acquisition financing
by Indian banks, the debt component was financed by mutual
funds and other alternative credit providers through NCDs.
In another interesting transaction, various subsidiaries of
ReNew Power Ventures Private Limited (ReNew Power) issued INR
denominated bonds overseas (commonly referred to as Masala
bonds). Each issuance was secured by Indian assets and
guaranteed by ReNew Power and each other issuer. The Masala
bonds were subscribed to by an offshore special purpose vehicle
(SPV), which raised funds for the subscription by issuing US
dollar bonds to global investors, which were in turn secured by
the Masala bonds. This unique structure addressed the foreign
investors' concerns relating to taking a pure INR risk, while
enabling the Indian issuers to raise INR funding.
2.2 Have there been any significant developments in the way
cross-border financing transactions are structured or in the
way borrowers and/or lenders are participating in the
A few key trends have included an increase in financings
being structured through NCDs as opposed to ECBs; the issuance
of Masala bonds (but see paragraph 3.2 below); and widely
syndicated deals being replaced by bilateral or club deals.
SECTION 3: Legislation and policy
3.1 Describe the key legislation and regulatory bodies that
govern cross-border financing in your jurisdiction.
The Foreign Exchange (Management) Act 1999, is the umbrella
legislation governing foreign exchange control, with the RBI as
the main regulator governing, among other things, cross-border
The Securities and Exchange Board of India Act 1992, is the
umbrella legislation for the securities market, with Sebi as
the main regulator governing, among other things, the issuance
of listed debt securities, the registration and regulation of
FPIs and takeovers of listed entities.
3.2 Have there been any recent changes to regulations or
regulators that may impact the cross-border financing market
and what impact do you expect them to have?
The market has seen some lender/investor friendly changes in
the regulations, for example:
- Eligible start-ups are now permitted to
avail ECBs up to a specified limit without an 'all-in-cost'
cap, which otherwise applies to ECBs.
- FPIs are now permitted to invest in
unlisted NCDs, subject to some end-use restrictions
(previously they could invest only in listed NCDs except in
the infrastructure sector).
- The benefit of certain special legislation
for debt recovery and security enforcement, previously
available only to Indian banks and certain financial
institutions, is now extended to debenture trustees for
listed debentures (and through them, FPI investors).
There have also been some instances of tightening regulatory
norms, for example:
- FPIs can now only subscribe to NCDs with a
remaining average maturity of three years at the time of
investment, thus excluding them from the market for shorter
- The issuance of Masala bonds now requires
the approval of the RBI and has been made subject to
3.3 Are there any rules, legislation or policy frameworks
under discussion that may impact lenders or borrowers involved
in cross-border financing in your jurisdiction?
Amendments to the Companies Act 2013, (including in relation
to the provision of guarantee and security) are currently being
discussed in the Indian parliament.
The Indian government is also expected to review the working
of the new Insolvency and Bankruptcy Code, 2016 (IBC), with a
view to strengthening processes and timelines based on
interpretational issues that have arisen.
The RBI has proposed draft regulations governing
cross-border mergers, which will impact the structuring of
acquisition finance deals involving debt pushdown through
SECTION 4: Market idiosyncrasies
4.1 Please describe any common mistakes or misconceptions
that exist about the financing market in your
The INR is not fully convertible and RBI imposes several
restrictions on cross-border transactions, often prohibiting or
regulating transactions that would be considered standard in
developed markets. New foreign entrants to the Indian market
are often not aware of the significant impact this can have on
the structuring of cross-border financings.
4.2 Are there frequently asked questions or often
overlooked areas from parties involved in cross-border
financings in your jurisdiction?
Other than exchange control restrictions, another critical
point is the impact of stamp duty. Stamp duty is payable on any
agreement executed in India or brought to India after
execution. The rate varies from state to state and in certain
cases, such as the assignment of contractual rights, it can be
prohibitively high. This can have a significant impact on
transaction and security structuring.
4.3 Are there any classes of assets over which security
cannot be taken or regulations specific to your jurisdiction
governing the taking of security over certain classes of assets
that lenders should be aware of?
Prior approval of the RBI is required for cross-border
security except for security for ECBs, ODI financing and in
some cases, FDI financing. Even in these cases (except for
NCDs) security creation is subject to approval from authorised
dealer banks and prescribed conditions.
Enforcement may be subject to restrictions as well. For
example, immovable assets can only be sold to an Indian
resident and pledged shares must be sold in compliance with
relevant regulations (including foreign investment regulations
and, for listed shares, takeover regulations).
Finally, any remittance pursuant to a judgment of a court
requires prior RBI approval.
4.4 What measures should be taken to best prepare for your
Given the highly regulated nature of the Indian cross-border
financing market, it would be advisable for lenders to analyse
the Indian regulatory impact on their structures at an early
stage to avoid any last minute road blocks that may stall the
SECTION 5: Practical considerations
5.1 Briefly explain the downstream, upstream and
cross-stream guarantees available in your jurisdiction, with
reference to any specific restrictions or limitations.
The key restrictions (most of which apply to security
creation as well) are:
- if the guarantor is a public company,
financial assistance restrictions apply;
- subject to certain exceptions, no
guarantee can be provided by a company to or on behalf of: a
private company in which a director of the guarantor
(Director) is a director or a member; any firm in which a
Director or its relative is a partner; a body corporate in
which at least 25% of the voting rights is exercised by one
or more Directors; or a body corporate, whose board or
manager acts in accordance with the instructions of any
- The guarantees must be within the limits
prescribed under the Companies Act 2013, unless increased
through a special resolution of the shareholders; and
- the guarantee will require prior approval
of a public financial institution if the guarantor has taken
any loans from it and either the amount of the guarantee
exceeds the limits under Companies Act 2013 or the guarantor
has defaulted under such loan.
- For cross-border guarantees, where:
(a) guarantees for offshore joint-ventures/wholly-owned
subsidiaries are permitted subject to financial caps, equity
holding and other specified requirements;
(b) guarantees for overseas holding companies require RBI
(c) guarantees for any ECBs by an Indian company are subject
to specified requirements and must be approved by an authorised
dealer bank – ECBs cannot be guaranteed by banks or
non-bank finance companies;
(d) NCDs can be guaranteed by parent/group
companies/promoters of the issuer without regulatory approvals
but not by banks; and
(e) necessary filings must be made.
5.2 Are there any specific issues creditors should be
mindful of regarding a bankruptcy and restructuring
The RBI prescribes various contractual mechanisms for
restructuring of debts, which are available to and mandatory
for Indian lenders. Overseas lenders and bondholders are not
bound by such restructurings but neither do they have any role
to play and, as a result, may find themselves excluded from the
restructuring of a significant part of the borrower's debt.
The IBC provides a more unified approach. Any creditor
(including foreign creditors) whose debt is under default can
make an application to the National Company Law Tribunal (NCLT)
to initiate an insolvency resolution process.
A few key considerations to note here are:
- if the petition is admitted, an automatic
moratorium (of 180 days, extendable to 270 days) is imposed
on any suits or claims against the company;
- while foreign creditors may initiate a
resolution process, given that decision making is by a 75%
vote (by value) of all financial creditors, they may have
limited control given that the debt profile of Indian
borrowers is typically skewed in favour of domestic
- as with other jurisdictions, the IBC
provides for avoidance of certain preferential transactions,
transactions at an undervalue, extortionate credit
transactions and certain floating charges, in each case,
within specified hardening periods.
5.3 Do foreign debt quotas apply in your jurisdiction and
is offshore financing to domestic entities monitored?
Foreign investments in corporate debt instruments (which
include NCDs and Masala bonds) is capped at an aggregate of $51
In addition, there are limits on raising of ECBs by a
borrower (ranging between $100 million to $750 million,
depending on the industry sector the borrower is in) and any
ECB in excess of such limit requires approval of the RBI. These
limits are monitored through mechanisms prescribed by the RBI
5.4 Describe your jurisdiction's relationship with
non-performing loans (NPLs), including volume of outstanding
NPLs and techniques/challenges in managing them.
Indian banks are burdened with high levels of non-performing
debt, with estimates varying between 7.5% to over 9% of total
gross loans. While macroeconomic factors and questionable
credit assessment have been major causes, debtor-friendly
courts, long resolution periods and low recovery rates and have
only compounded the problem.
Domestic lenders have in the past typically contractually
restructured their debt under the RBI's schemes mentioned in
paragraph 5.2 above, as these provide them provisioning
benefits. Another method has been to sell NPLs to asset
reconstruction companies at a discount under special
legislation. However, these methods have shown limited success
in the revival of stressed assets or in providing a broader
solution to systemic issues. The IBC is a new legislation with
its own share of teething problems, but is clearly a step in
the right direction to addressing this issue.
SECTION 6: Outlook
6.1 What are your predictions for the next 12 months for
cross-border financing in your jurisdiction? How do you expect
legal practice to respond?
Acquisition finance (primarily led by private equity houses)
through both offshore financing and NCDs is expected to
continue and increase in volume. With the increased level of
non-performing assets in the Indian banking system, more
activity can be expected in the distressed debt space as well.
Lastly, alternative credit providers such as stressed asset
funds and the credit desks of private equity houses are
expected to play a prominent role in the financing market.
Legal practitioners will need to be aware of the issues and
considerations that are relevant to these new financiers, which
may often be different from the traditional players in the
Partner, Talwar Thakore &
T: +91 226 613 6988
F: +91 226 613 6901
Sonali Mahapatra is a partner in the firm and a
specialist in banking and finance with wide experience
in Indian and international financings. She also
advises a number of investors for their infrastructure
investments in India. Her experience includes advising
on acquisition finance, project and asset finance and
structured finance. She has advised on a number of
leading financing transactions.
Partner, Talwar Thakore &
T: +91 226 613 6936
F: +91 226 613 6901
Rituparno Bhattacharya is a partner in the firm and
an experienced practitioner in banking and finance. He
has worked for international and domestic institutions
on several structured finance, acquisition finance,
asset finance and trade finance transactions.
Managing associate, Talwar Thakore &
T: +91 226 613 6947
F: +91 226 613 6901
Nidhi Rani is a managing associate with the firm
specialising in the banking and finance space and has
advised several international as well as domestic