Promoter Funding

Summary of Regulatory Stance:

Parameter	RBI View
Direct promoter funding by banks	❌ Prohibited
Loans against promoter shares	✅ Allowed (subject to margin & exposure norms)
NBFC-led structured loans to promoters	✅ Permitted
Use of LAS for speculation or market purchase	❌ Not allowed

How Consultancy Services Can Help:

A consultancy firm can facilitate promoter funding by:

Service Offered	Details
Due Diligence	Evaluate the promoter's creditworthiness, assets, and pledged securities.
Loan Structuring	Structure LAS, inter-corporate deposits, or promoter guarantee-backed loans via NBFCs.
Liaison with Banks/NBFCs	Act as an intermediary to negotiate loan terms or structure private equity deals.
Regulatory Compliance	Ensure funding complies with RBI/FEMA norms, especially in case of external commercial borrowings (ECBs) or FDI.
Pledge Management	Assist with documentation and registration of pledge with depositories like NSDL/CDSL.
Exit Planning	Develop exit strategies like refinancing, IPO, or strategic sales for eventual repayment.

1. Prohibition on Financing Acquisition of Shares:

• As per RBI Circular DBOD.Dir.(Exp). BC.No.110/04.02.001/2008-09, banks are prohibited from providing loans for investment in shares including IPOs or financing the acquisition of shares of other companies (i.e., leveraged buyouts).
• However, loans against shares may be provided to individuals (including promoters) subject to margin requirements.

2. Loan Against Shares (LAS):

• Banks and NBFCs can extend Loan Against Shares (LAS) to promoters under certain conditions.
• Maximum limit for LAS:
  • ₹10 lakh for retail individual investors.
  • For corporate purposes, subject to board-approved policies and risk assessments.

3. Structured Obligations (So):

• Promoters can raise funds through structured obligations (e.g., pledge of shares) to infuse equity in group companies.
• NBFCs (especially NBFC-ICCs and NBFC-Investment and Credit Companies) often structure these loans for promoters.

4. Pledge of Shares:

• Promoters can pledge shares as collateral to raise funds for:
  • Infusion of capital into the business.
  • Debt restructuring or repayment.
  • Working capital.

Debt-Equity Norms:

• Banks may allow promoters to bring in their equity contribution in phases under debt-equity structuring.
• Such loans must be repaid out of future cash flows and must not be used to speculate.

Alternative Instruments Used for Promoter Support:

• Non-Convertible Debentures (NCDs) issued by promoter entities and subscribed by AIFs or NBFCs.
• Structured Debt Instruments with covenants tied to project milestones.
• Bridge Loans from NBFCs for promoter equity infusion before fund-raising or IPO.