Bank lending to subsidiary eased, good for infrastructure projects
Banks can provide infrastructure lending to special purpose vehicles (SPV) on the basis of the guarantees or security provided by a holding company.
The Corporate Affairs Ministry has clarified that for loans made by a bank to a subsidiary company, a holding company can (without any limit) give guarantee or provide security. Bankers say that this will benefit infrastructure lending by banks.
It was feared that after the new company law is enacted, infrastructure lending by banks could be affected as the new law placed restrictions on provision of loans or guarantees to a subsidiary company by a holding company. In India, in a lot of cases SPVs are formed to execute infrastructure projects. Bank loans to such vehicles are on the strength of the guarantees of the holding company.
Lalit Kumar, Partner, J Sagar Associates, a law firm, says this comes as a relief to a lot of infrastructure companies. He informs that this however is not applicable to cases where a parent company wants to itself extend a direct loan to its subsidiary.
This exception will be temporary as under the new company law (Section 186 not yet notified) overall 60 per cent (paid-up capital, free reserves and securities premium) or 100 per cent (free reserves and securities premium) limits would apply for loans/guarantees given by a parent to subsidiary.
Source: Business Line
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