Saturday, October 20, 2007

The Reserve Bank of India has recommended to the finance ministry a series of measures to curb investment flow of venture funds [FM8579-29]

These measures are expected to help check part of the huge inflows of foreign capital, particularly since the last week of July, and plug loopholes in foreign investment norms. Writes Anindita Dey in her story "RBI suggests more curbs on VC funds" on Business Standard.

Venture Finance for mature sectors like real estate:

RBI has suggested restrictions on investments by venture capital funds in sectors that are already developed and booming. RBI has said that venture funds by definition should be investing in high-risk ventures in which entrepreneurs are unable to access capital and not in mature sectors like real estate.

Isn't real estate "high-risk venture"? Do banks finance for land acquisition? Ask any builder, nobody will say Indian Real Estate is a 'mature sector'. In short, this has become a love triangle and RBI is not happy with Indian Real Estate's "affair".

Overseas borrowing without restrictions!:

RBI has suggested that FDI in real estate be brought under the approval route — such investment is currently under the automatic route.

The RBI has suggested that there should be end-use restrictions for investments by foreign venture capital funds.

It has also sought a time-frame within which companies have to allot shares to foreign entities after receiving advance payments. This is designed to curb a practice by Indian companies of using advance payments from foreign sources as loans and then returning the money.

Such transactions amount to overseas borrowings without restrictions. Overseas borrowings are currently locked in for a minimum of three years and the interest paid is capped at 150 basis points above the benchmark London Interbank Offered Rate (Libor) for borrowings of three years and above; and 250 basis points above Libor for borrowings of five years and more.

Thanks to sub-prime crisis, at least Indian real estate investors have become less critical of the RIB's policies.

No comments:

Post a Comment