EURO_005 - Taxpublishers.in

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The Tax Publishers CLARIFICATION 4 Conditions subject to which authorised dealers/public financial institutions are to accept foreign deposits from Indian Companies out of Euro Issue proceedsSource : AD (GP Series) Circular No. 6, dt. 20-7-1995. 1. At present Indian companies going in for Euro Issues, viz., global depository receipts/foreign currency convertible bonds (GDRs/FCCBs) are required mandatorily to retain the proceeds of such issues abroad to be repatriated to India as and when the expenditure for the approved end uses is incurred. Such funds could be kept abroad either with foreign banks which are rated for short-term obligations as A 1 + by Standard & Poor or P 1 by Moodys, or Branches of Indian banks as deposits or invested in treasury bills and other monetary instruments with maturities not exceeding one year. 2. In terms of the revised 'Guidelines for Euro Issues' issued by Government of India on 24-5-1995 the companies going for Euro Issues will now have the option of retaining the proceeds of Euro Issues abroad as indicated in paragraph 1 above or keeping the issue proceeds in foreign currency deposits with authorised dealers and/or public financial institutions in India holding authorisation from Reserve Bank to deal in foreign exchange. 3. Accordingly, it would be in order for authorised dealers/public financial institutions to accept foreign currency deposits from Indian companies out of Euro Issue proceeds subject to the following conditions : (i) The foreign currency deposits would carry interest at a rate not exceeding LIBOR for the respective period for which the deposit is accepted. (ii) The authorised dealers/public financial institutions with whom the foreign currency deposits are kept should not swap the foreign currency for rupees but use the amounts for lending in foreign currency to eligible clients. (iii) The authorised dealers may also invest surplus foreign currency out of such Euro, issue proceeds as permitted in paragraph 5B.9 of the Exchange Control Manual subject to the condition indicated in (ii) above. (iv) The authorised dealers/public financial institutions accepting the foreign currency, deposits would be eligible to charge interest at the rate not exceeding 2.5 per cent over six months LIBOR for lending out of such funds. (v) The authorised dealers will be required to maintain a cash reserve ratio of 7.5 per cent on such deposits. (vi) The deposits can be converted into Indian rupees only as and when expenditure for approved end uses (including up to maximum of 15 per cent of the proceeds earmarked for general corporate restructuring uses) are incurred by the issuer company. (vii) The authorised dealers/public financial institutions accepting such deposits as also the issuer company, as the case may be, should also comply with the conditions stipulated by Government of India in their approval letters for such issues. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers
CLARIFICATION 4
Conditions subject to which authorised dealers/public financial institutions are to accept foreign deposits from Indian Companies out of Euro Issue proceedsSource : AD (GP Series) Circular No. 6, dt. 20-7-1995.

1. At present Indian companies going in for Euro Issues, viz., global depository receipts/foreign currency convertible bonds (GDRs/FCCBs) are required mandatorily to retain the proceeds of such issues abroad to be repatriated to India as and when the expenditure for the approved end uses is incurred. Such funds could be kept abroad either with foreign banks which are rated for short-term obligations as A 1 + by Standard & Poor or P 1 by Moodys, or Branches of Indian banks as deposits or invested in treasury bills and other monetary instruments with maturities not exceeding one year.

2. In terms of the revised 'Guidelines for Euro Issues' issued by Government of India on 24-5-1995 the companies going for Euro Issues will now have the option of retaining the proceeds of Euro Issues abroad as indicated in paragraph 1 above or keeping the issue proceeds in foreign currency deposits with authorised dealers and/or public financial institutions in India holding authorisation from Reserve Bank to deal in foreign exchange.

3. Accordingly, it would be in order for authorised dealers/public financial institutions to accept foreign currency deposits from Indian companies out of Euro Issue proceeds subject to the following conditions :

(i) The foreign currency deposits would carry interest at a rate not exceeding LIBOR for the respective period for which the deposit is accepted.

(ii) The authorised dealers/public financial institutions with whom the foreign currency deposits are kept should not swap the foreign currency for rupees but use the amounts for lending in foreign currency to eligible clients.

(iii) The authorised dealers may also invest surplus foreign currency out of such Euro, issue proceeds as permitted in paragraph 5B.9 of the Exchange Control Manual subject to the condition indicated in (ii) above.

(iv) The authorised dealers/public financial institutions accepting the foreign currency, deposits would be eligible to charge interest at the rate not exceeding 2.5 per cent over six months LIBOR for lending out of such funds.

(v) The authorised dealers will be required to maintain a cash reserve ratio of 7.5 per cent on such deposits.

(vi) The deposits can be converted into Indian rupees only as and when expenditure for approved end uses (including up to maximum of 15 per cent of the proceeds earmarked for general corporate restructuring uses) are incurred by the issuer company.

(vii) The authorised dealers/public financial institutions accepting such deposits as also the issuer company, as the case may be, should also comply with the conditions stipulated by Government of India in their approval letters for such issues.