KOCHI: The RBI on Thursday informed the High Court that it had approved the issuance of the masala bonds by the Kerala Infrastructure Investment Fund Board (KIIFB) under the Foreign Exchange Management Act (FEMA). The central bank also said the power to probe FEMA violations lay with the Enforcement Directorate (ED).
The affidavit was filed by KIIFB following the directives of the court to inform the role of RBI under the provisions of the FEMA and the regulatory framework governing External Commercial Borrowings (ECB).
ED is probing the contravention of regulations of the FEMA in the issuance of masala bonds by KIIFB. KIIFB was constituted by Kerala as a body corporate financial institution to mobilise funds from outside the state revenue for infrastructure development. The agency raised `2,150 crore in 2019 through rupee-denominated bonds .
The RBI pointed out that KIIFB had applied to its authorised dealer (AD), Axis Bank, to seek the no objection from the foreign exchange department of the RBI for issuing masala bonds to non-residents overseas. The application was examined and the ‘no-objection’ was provided by the RBI on June 1, 2018, to KIIFB. The no objection was issued by RBI from FEMA’s perspective for ECB by way of issuance of masala bonds.
The RBI had also clarified that the issuance of NOC is from the FEMA angle only and should not be construed to convey the approval by any other statutory authority or government under any other laws.
Subsequently, on receipt of the form ECB, RBI allotted a Loan Registration Number (LRN) for the proposed issuance of rupee-denominated bonds.
While allotting the LRN, it was clarified that the same may not be construed as an approval of the terms of the ECB and that the issuance of LRN shall not prejudice the right of RBI to take any action for non-compliance of extant rules, regulations, and directions issued under FEMA. RBI also said some factual narrations in the writ petitions do not concern the central bank and it cannot ascertain their veracity.