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The Reserve Bank of India has asked companies that have borrowed long-term foreign currency funds either through loans or equity to disclose the end-use of such funds.
Details have been sought on funds raised through external commercial borrowings, foreign currency convertible bonds, American depository receipts and global depository receipts to the extent of $50 million and above.
According to banking sources, the RBI's move follows apprehensions that some corporates may have deployed funds raised through these routes in the equity market.
The sources said some firms were raising "lien" against foreign currency loans parked overseas. In other words, they are raising funds in the domestic market by using overseas loans as collateral.
The domestic funds might have found their way into the equity market, they said. "In effect, the corporates are using one loan as collateral for raising another. This is not permissible," said a banker. The RBI has asked corporates to disclose the details of liens attached to these loans.
It has also directed all of them to furnish documents certifying the end-use of these funds. This includes the approvals by company boards, and certificates from chartered accountants and banks. So far, the RBI had not detected any misuse of funds, sources said.
Available data show that India Inc has raised a total debt of $6.34 billion through ECBs and FCCBs since January 2005. Funds raised through ADRs and GDRs work out to $1.1 billion for the same period.
The government has an internal limit of $12 billion for syndicated loans to be raised by corporates through ECBs and FCCBs. Individually, a company can raise up to $500 million using the automatic route that does not need the approval of the RBI.
According to sources, even if there are no immediate plans to tinker with such limits, the end-use mentioned in future proposals will be strictly monitored.