RESERVE BANK OF INDIA (RBI)

Reserve Bank of India has observed that eligible Indian parties are using overseas direct investments (ODI) automatic route to set up certain structures facilitating trading in currencies, securities and commodities. Also that such structures having equity participation of Indian parties have also started offering financial products linked to Indian Rupee. RBI through RBI/2012-13/481 A.P. (DIR Series) Circular No. 100 dated 25th April 2013, clarified that any overseas entity having equity participation directly / indirectly shall not offer such products without the specific approval of the Reserve Bank of India given that currently Indian Rupee is not fully convertible and such products could have implications for the exchange rate management of the country. Any incidence of such product facilitation would be treated as a contravention of the extant FEMA regulations and would consequently attract action under the relevant provisions of FEMA, 1999

Reserve Bank of India had through its earlier notifications allowed Navratna Public Sector Undertakings (PSUs) and ONGC Videsh Ltd (OVL) and Oil India Ltd (OIL) to invest in overseas unincorporated entities in oil sector (for exploration and drilling for oil and natural gas, etc.), which were duly approved by the Government of India, without any limits under the automatic route.

RBI has now vide its circular RBI/2012-13/480 A.P. (DIR Series) Circular No. 99 dated 23rd April 2013, decided that such facility shall also extended to the overseas investments in the incorporated JV / WOS in oil sector (for exploration and drilling for oil and natural gas, etc.) by the Navratna Public Sector Undertakings (PSUs) and ONGC Videsh Ltd (OVL) and Oil India Ltd (OIL), which are duly approved by the Government of India, without any limits under the automatic route.

In pursuance of RBIs circular A.P.(DIR Series) Circular No.80 dated January 24, 2013 the present limit for investments by FIIs and long term investors in Government securities is USD 25 billion and for corporate debt is USD 51 billion (including sub-limit of USD 25 billion each for bonds of infrastructure sector and non-infrastructure sector and USD 1 billion for QFIs in non-infrastructure sector).

Reserve Bank of India has through RBI/2012-13/465 A.P. (DIR Series) Circular No.94 dated 1st April 2013, decided to merge the existing debt limits into two broad categories as under:

1. Government Debt limit: Government securities of USD 25 billion by merging the existing sub-limits under Government securities [(a)USD 10 billion for investment byFIIs in Government securities including Treasury Bills and (b) USD 15 billion for investment In Government dated securities by FIIs and long term investors];and

2. Corporate Debt Limit: Corporate debt of USD 51 billionby merging the existing sub-limits of Corporate debt [(a) USD 1 billion for Qualified Foreign Investors (QFIs), (b) USD 25 billon for investment by FIIs and long term investors in non-infrastructure sector and (c) USD 25 billion for investment by FIIs/QFIs/long term investors in infrastructure sector].

Summary of the revised position is as under: