RESERVE BANK OF INDIA

The RBI has, vide circular no. RBI/2013-14/147 A.P (DIR Series) Circular No. 14, dated 22.07.2013, made clarifications on time period for repatriation & realisation of export proceeds.

According to the Circular No. A.P. (DIR Series) Circular No. 52, dated 20.11.2012, the period for realisation & repatriation of the amount representing the full value of goods or software exported, was extended from 6 months to 12 months, from the date of export upto March 31, 2013.

Further, in terms of Circular No. A.P. (DIR Series) Circular No. 105, dated 20.05.2013, it was decided, to bring down the above stated 12 months to 9 months, from the date of export, valid till September 30, 2013.

In this connection, it is clarified that, as the realisation & repatriation period stipulated in circular no. A.P. (DIR Series) Circular No. 52, dated 20.11.2012 was valid till March 31, 2013 only, the time period for realisation & repatriation of export proceeds from April 01, 2013 onwards till September 30, 2013, shall be considered as 9 months from the date of export.

RBI has, vide Circular No. RBI/2013-14/126 A.P. (DIR Series) Circular No. 6, dated 08.07.2013, decided to allow NBFCs, categorised as Asset Finance Companies (AFCs) by the Reserve Bank and complying with the norms prescribed in the Circular DNBS. PD. CC. No. 85/03.02.089/2006-07 dated December 6, 2006 of the Bank, as amended from time to time, to avail of ECB subject to following conditions:

• NBFC-AFCs are allowed to avail of ECB under the automatic route from all recognised lenders as per the extant ECB guidelines with minimum average maturity period of five years in order to finance the import of infrastructure equipment for leasing to infrastructure projects.

• In cases, where the NBFC-AFCs avail of ECB in the form of Foreign Currency Bonds from international capital markets, such ECBs will be permitted to be raised only from those international capital markets that are subject to regulations prescribed by the host country regulator in a Financial Action Task Force (FATF) member country compliant with FATF guidelines.

• Such ECBs (including outstanding ECBs) under the automatic route can be availed upto 75 % of owned funds of NBFC-AFCs, subject to a maximum of USD 200 million or its equivalent per financial year.

• ECBs by AFCs above 75 per cent of their owned funds will be considered under approval route by Reserve Bank.

• the currency risk of such ECBs is required to be hedged in full.

However, as per the earlier ECB guidelines, non-banking financial companies (NBFCs) were allowed to avail of ECB under approval route from multilateral financial institutions, reputable regional financial institutions, official export credit agencies and international banks with minimum average maturity of 5 years to finance import of infrastructure equipment for leasing to infrastructure projects.

The Department of Industrial Policy and Promotion (“DIPP”), Ministry of Commerce & Industry, Government of India had, vide Press Notes 2 and 3 (2009 series) dated February 13, 2009, issued guidelines for calculation of total foreign investment, i.e., direct and indirect foreign investment in Indian companies and for establishment of Indian companies/ transfer of ownership or control of Indian companies from resident Indian citizens to non-resident entities, in sectors with caps. Further, DIPP, vide their Press Note 2 (2012 series) dated July 31, 2012, had made certain other changes.

The contents of the above mentioned press notes is comprehensively explained in the Consolidated FDI Policy Circular 1 of 2013 dated April 5, 2013.

All other investments, made after February 13, 2009 , would come under the ambit of these new guidelines. Recognising the need to bring in clarity, uniformity, consistency and homogeneity into the exact methodology of calculation across sectors/activities for all direct and indirect foreign investment in Indian companies, Government of India now proposes to issue the following guidelines for calculation of direct and indirect foreign investment. For the purpose of computing the total foreign investment i.e, both direct and indirect foreign investment, in an Indian Company, RBI has notified through this circular, the definitions of direct foreign investment and indirect foreign investment.

Investment in Indian companies can be made both by non-resident as well as resident Indian entities. Any non-resident investment in an Indian company is direct foreign investment. Investment by resident Indian entities could again comprise of both resident and non-resident investment. Thus, such an Indian company would have indirect foreign investment if the Indian investing company has foreign investment in it. The indirect investment can be a cascading investment i.e. through multi-layered structure also.

Counting of Direct foreign investment: Investments made directly by non-resident entities into the Indian company would be counted towards “ direct foreign investment.”

Counting of indirect foreign investment: The entire indirect foreign investment by the investing company into the other Indian company would be considered for the purpose of computation of indirect foreign investment.
As an exception to this, the indirect foreign investment in the 100% owned subsidiaries of operating-cum-investing/investing companies will be limited to the foreign investment in operating-cum-investing/investing company.

Illustration:

To illustrate, if the indirect foreign investment is being calculated for Company A which has investment through an investing company B having foreign investment, the following would be the method of calculation:

1. where Company B has foreign investment less than 50%- Company A would not be taken as having any indirect foreign investment through Company B.

2. where Company B has foreign investment of say 75% and:

1. invests 26% in Company A, the entire 26% investment by Company B would be treated as indirect foreign investment in Company A;

2. Invests 80% in Company A, the indirect foreign investment in Company A would be taken as 80%

3. where Company A is a wholly owned subsidiary of Company B ( i.e. Company B owns 100% shares of Company A), then only 75% would be treated as indirect foreign equity and the balance 25% would be treated as resident held equity. The indirect foreign equity in Company A would be computed in the ratio of 75: 25 in the total investment of Company B in Company A.

For the purpose of computation of indirect Foreign investment, Foreign Investment in Indian company shall include all types of foreign investments i.e. FDI, investment by FIIs, NRIs, ADRs, GDRs, Foreign Currency Convertible Bonds (FCCB) and convertible preference shares, convertible Currency Debentures regardless of whether the said investments have been made under Schedule 1, 2, 3 and 6 of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations.

The total foreign investment would be the sum total of direct and indirect foreign investment.

The above methodology of calculation would apply at every stage of investment in Indian Companies and thus to each and every Indian Company.