Overseas Direct Investments – Rationalization/Clarifications -
Reserve Bank of India has vide notification RBI/2013-14/220 A.P. (DIR Series) Circular No.30 dated 4th September, 2013 issued clarifications on revised guidelines pertaining to Overseas Direct Investment (ODI) by Indian companies, which was notified on August 14, 2013 wherein RBI has clarified as under:
That all the financial commitments made on or before August 14, 2013, in compliance with the earlier limit of 400% of the networth of the Indian Party under the automatic route will continue to be allowed.
The limit of financial commitments for an Indian Party (presently 100% of its net worth) shall not apply to the financial commitments funded out of EEFC account of the Indian Party or out of funds raised by way of ADRs / GDRs by the Indian Party, as hitherto.
To retain the limit of 400% of the net worth of the Indian Party for the financial commitments funded by way of eligible External Commercial Borrowing (ECB) raised by the Indian Party as per the extant ECB guidelines issued by the Reserve Bank of India from time to time.
Review of Foreign Investment Policy for Asset Reconstruction Sector.
Reserve Bank Of India has vide notification no. RBI/2013-14/191 A.P (DIR Series) Circular No. 28, dated 19/08/2013 notified the following changes in the Foreign Investment Policy towards Asset Reconstruction Companies (“ARCs”).
According to the earlier circular dated 11/11/2005:
FDI upto 49% in the equity capital of ARCs was allowed subject to some conditions, but Foreign Institutional Investors (“FIIs”) in the equity capital of ARCs was not allowed.
FIIs could invest in the Security Receipts (“SRs”) upto 49% of each tranche of SRs, and investment of a single FII in each tranche of the scheme shall not exceed 10% of the issue.
After a review of the policy, the following was decided:
The ceiling for FDI in ARCs increased from 49% to 74%, subject to the condition that no sponsor may hold more than 50% shareholding in any ARC either through FDI or by routing through an FII. The foreign investment in ARCs would need to comply with the FDI policy in terms of entry route conditionality and sectoral caps
The ARC limit of 74% would be a combined limit of FDI & FIIs.
The limit of FII investment in SRs may be enhanced from 49% to 74% of the paid up value of each tranche of scheme of Security Receipts issued by the Asset Reconstruction Companies. Further, the individual limit of 10% for investment of a single FII in each tranche of SRs issued by ARCs may be dispensed with. Such investment should be within the FII limit on corporate bonds prescribed from time to time, and sectoral caps under the extant FDI Regulations should be complied with.
Reduction of limit for Overseas Direct Investment (ODI).-
RBI has vide notification no. RBI/2013-14/180 A.P(DIR Series) Circular No. 23, dated 14/08/2013, informed all the Category –I Authorized dealers to rationalize the regulations governing ODI, with immediate effect.
The RBI has now decided:
To reduce the limit for ODI under automatic route for all fresh ODI transactions, from 400% to 100% of the net worth of the Indian Party, as on the date of the last audited balance sheet;
To reduce the existing limit of 400 per cent of the net worth of the Indian company, investing in the overseas unincorporated entities in the energy and natural resources sectors, under the automatic route, to 100 per cent of the net worth of the Indian company investing in the overseas unincorporated entities in the energy and natural resources sectors, as on the date of last audited balance sheet; and
Any ODI in excess of 100% of the net worth shall be considered under the Approval Route by the Reserve Bank of India.
Liberalized Remittance Scheme for Resident Individuals – Reduction of limit from USD 200,000 to USD 75,000-
The Reserve Bank Of India has vide notification no. RBI/2013-14/181 A.P(DIR Series) Circular No. 24, dated 14/08/2013, notified the modifications in the Liberalized Remittance Scheme (“LRS”) for resident individuals.
It is now decided by the RBI to reduce the existing limit for remittances made by Resident Individuals under LRS from USD 200,000 to USD 75,000 per financial year for any permitted current or capital account transactions or for a combination of both.The following changes in regard to the remittances under LRS will come into effect immediately “
The scheme should no longer be used for acquisition of immovable property, directly or indirectly, outside India.
The scheme should not be used for making remittances for any prohibited or illegal activities such as margin trading, lottery etc., as hitherto.
Resident individuals have now been allowed to set up Joint Ventures (JV) / Wholly Owned Subsidiaries (WOS) outside India for bonafide business activities outside India within the limit of USD 75,000 with effect from August 5, 2013 and subject to the terms and conditions stipulated
In respect of the Navaratna Public Sector Undertakings (PSUs), ONGC Videsh Limited (OVL) and Oil India Ltd (OIL), the extant provision for investing in overseas unincorporated entities and the overseas incorporated entities in the oil sector, which are duly approved by the Government of India, without any limits under the automatic route, would however continue
These provisions shall apply to all fresh ODI proposals but would not apply to the existing Joint Ventures/Wholly owned subsidiaries set up under the extant regulations.