The Telegraph
Since 1st March, 1999
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Overseas direct investment norms relaxed

Mumbai, Dec. 6: The Reserve Bank of India (RBI) today further relaxed the policy on overseas direct investment by Indian companies.

In a crucial move that could create a level-playing field for local corporate houses having a presence abroad, the central bank removed the prevailing restrictions on Indian companies, holding more than 50 per cent stake in an overseas entity, to diversify or alter the shareholding pattern in that venture.

Earlier, an Indian party, which held 50 per cent or more of the paidup capital of the overseas entity, had to apply to the RBI to diversify or alter the shareholding pattern in the overseas venture.

This restriction was not applicable in case the Indian party is a minority shareholder or the investment had been made entirely out of balances held in EEFC account or ADR/GDR proceeds.

Further, corporate houses having a good track record can now make direct investments outside India in an entity engaged in any business activity under the automatic route up to 100 per cent of its net worth or $ 10 million in a year.

While the RBI had earlier prohibited investments by domestic corporates in joint venture/wholly-owned subsidiaries abroad through a special purpose vehicle (SPV) under the automatic route, it has now decided to bring such investments under the automatic route.

In a circular issued to banks today, the apex bank, however, clarified that this relaxation will not be applicable to Indian parties included in its caution list or under investigation by the Enforcement Directorate.

This restriction, it added, is also applicable to domestic companies which are defaulters to the banking system here and whose names appear in the defaulters’ list published by the RBI.

The RBI, therefore, has asked authorised dealers while allowing remittances under the automatic route that they should satisfy themselves that the corporate house proposing to make the investment is not included in the defaulters’ list.

“Indian parties whose names appear on the defaulters’ list may be advised to apply to the Reserve Bank for prior approval for the investment,” the central bank said.

In yet another relaxation, the RBI permitted all proposals for investment by way of swap of shares under the automatic route. Earlier, they required its prior approval. But, such swap transactions would require the prior approval of the Foreign Investment Promotion Board (FIPB) for the inward leg of investment.

The RBI also made certain relaxations regarding direct investment abroad in the financial services sector. At present, only Indian financial companies complying with other norms are permitted to invest abroad in the financial sector.

Partially modifying this regulation, RBI has scrapped the the minimum net worth stipulation of Rs 15 crore.

RBI here stressed that any Indian entity engaged in the financial services sector and wishing to undertake financial sector activities abroad should also obtain approval for doing so from the concerned regulatory authorities both in India and abroad before venturing into such activity.

The central bank also decided to permit local companies to transfer by way of sale to another Indian counter, any share or security held by it in a joint venture or wholly-owned subsidiary outside India subject to various conditions. Earlier, this needed the permission of the RBI.

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