MUMBAI, April 30: Six foreign banks, including Citibank and Dresdner Bank, extended Rs 72.6 crore to Tata Sons Ltd for long-term investments, including the exercise of rights against the warrants of Tisco.

These loans were extended to Tata Sons in violation of the Reserve Bank of India's guidelines, which prohibit banks from lending to corporates for purposes of crossholdings in group companies or to increase promoters' stakes in another concern.

Documents in the possession of The Financial Express show that Citibank, Dresdner Bank, Development Bank of Singapore, Banque Nationale de Paris, Oman International Bank and American Express Bank extended Rs 72.6 crore in term loans and overdrafts to Tata Sons to make "long-term investments". This banking arrangement between Tata Sons and the foreign banks mentioned was outstanding as on October 16, 1996.

Tata Sons, when contacted by The Financial Express, confirmed these transactions with the foreign banks.

Terms loans against a negative lien of shares were extended by Citibank for Rs 20 crore, while Dresdner Bank and Development Bank of Singapore extended Rs 5 crore each. Oman International Bank and Banque Nationale de Paris gave overdrafts of Rs 4.6 crore and Rs 5 crore against pledge of shares and in unsecured advances respectively. The biggest chunk was extended by American Express Bank to the tune of Rs 33 crore in term loans, which was secured by immovable property.

Tata Sons said that: "The details of the bank facilities are correct and so is the nature of security given for these facilities. All this information has been given by Tata Sons whenever questioned by a bank concerned".

While admitting that most of these facilities had been sanctioned for the purpose "of long-term investments", Tata Sons added that, "These obviously include the exercise of the rights against the warrants of Tata Steel".

Tata Sons, however, said that: "The facility of Rs 4.6 crore from Oman International bank is an overdraft facility sanctioned after 31 March, 1996, and, therefore, does not relate to investments made by Tata Sons before that date". Tata Sons replied that: "Most of these facilities were provided in the form of term loans repayable over specified periods and they are being repaid according to the stipulated schedules".

The Tatas also pointed out that: "These bank facilities of Rs 72.6 crore are a small fractionless than 8 per centof the total book-value of the investment portfolio of Tata Sons".

Tata Sons also claimed that in the Reserve Bank's recent credit policy: "It has been recognised that it is permissible for banks to provide finance (within certain limits) for promoters' contributions to issues of capital by the companies promoted by them".

Top senior central bankers pointed out that it was not the amounts involved that mattered, but the spirit of RBI regulations, which prevented such transactions.

"Banks cannot extend funds to promoters for hiking their stakes in group companies, crossholdings or long-term investments," said sources. They said that this route could be used by corporates for takeover purposes.RBI officials also dismissed Tata Sons' stance of citing the RBI's credit policy initiative of allowing banks to fund promoters to validate their position.

"Our recent moves on promoter funding are for new ventures, and not for already established corporates. In any case, Tata Sons has jumped the gun," they explained, and added: "To state that eight per cent of Tata Sons--a holding company -- investments at book value have been funded by public money is pretty serious. These should have been done through internal cash accruals".

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.