External Commercial Borrowings Policy – Liberalization Issue of Guarantee for operating lease
As all of you aware that in term of AP DIR Circular No.24 dated March 01, 2002 AD Category – I banks have been permitted to allow payment of lease rentals, opening of letters of credit towards security deposit, etc. in respect of import of aircraft / aircraft engine / helicopter on operating lease basis subject to the terms and conditions mentioned therein.
Further, in terms of AP DIR Circular No.01 dated July 11, 2008, as a measure of rationalization of the existing procedures, AD Category - I banks have been allowed to convey ‘no objection’ under the Foreign Exchange Management Act (FEMA), 1999 for creation of charge on immovable assets, financial securities and issue of corporate or personal guarantees in favour of overseas lender / security trustee, to secure the ECB to be raised by the borrower, subject to compliance of prescribed conditions.
As part of further rationalization, vide AP (DIR Series) Circular No.62 dated April 20, 2009, it has been decided to allow AD Category – I banks to convey ‘no objection’ from the Foreign Exchange Management Act (FEMA), 1999 angle for issue of corporate guarantee in favour of the overseas lessee, for operating lease in respect of import of aircraft / aircraft engine / helicopter.
The ‘no objection’ to the Indian importer for issue of corporate guarantee under FEMA, 1999 may be conveyed after obtaining –
- Board Resolution for issue of corporate guarantee from the company issuing such guarantees, specifying names of the officials authorised to execute such guarantees on behalf of the company.
- Ensuring that the period of such corporate guarantee is co-terminus with the lease period.
Click here - AP (DIR Series) Circular No.62 dated April 20, 2009
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