RBI asks banks to incorporate exit clause in overseas property transactions

The Reserve Bank of India (RBI) has asked banks to ensure that all future property transactions involving agreements for acquiring or letting out premises on rental or lease basis to incorporate suitable exit clause.

RBI has asked the boards of banks to frame suitable policies relating to purchase and sale of real estate as well as acquiring or letting out property on lease or rental basis at overseas centres.

RBI said the directive has been issued after it came to its notice that some Indian banks have committed certain lapses in purchase / sale of real estate as well as in acquiring/ letting out property on lease / rental basis at some places in foreign countries.

''In order to avoid such lapses in future it is advised that boards of directors of banks should lay down policies and formulate detailed operational guidelines to protect the interest of their respective banks.

''The policy / guidelines should be compliant with the provisions of the Foreign Exchange Management Act, 1999, the Banking Regulation Act, 1949, and other relevant Indian laws,'' said a RBI circular to banks.

''The policy should, inter alia, require the agreements for acquiring /letting out premises on rental / lease basis to incorporate a suitable exit clause.''

While undertaking transactions in the nature of sale and purchase of property and acquiring / letting out property on lease / rental basis at overseas centres, banks should also ensure that they comply with all the applicable laws of the host country /city or locality.