RBI/2013-14/220
A.P. (DIR Series) Circular No.30
September 04, 2013
To
All Category-I Authorised Dealer Banks
Madam / Sir,
Overseas Direct Investments – Rationalization/Clarifications
Attention of Authorised Dealer Category - I (AD Category - I) banks is invited
to the
A.P. (DIR Series) Circular No. 23 dated August 14, 2013 and the
Notification No. FEMA.120/RB-2004 dated July 7, 2004, as amended from time to
time. In this connection, Reserve Bank has been receiving queries from various
stakeholders including Authorised Dealers and Indian companies. All such queries
have been collated and are annexed to this circular along with the answers /
clarifications.
- It is clarified 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. In other
words, such investments shall not be subject to any unwinding or approval from
the Reserve Bank.
- Attention of Authorised Dealer Category - I (AD Category - I) banks is also
invited to the provisions under Regulation 6 of the Notification ibid, in terms
of which 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.
- It has been decided further 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.
- AD Category - I banks may bring the contents of this circular to the notice
of their constituents and customers concerned.
- Necessary amendments to the Notification, ibid, shall be notified separately.
- The directions contained in this circular have been issued under Sections
10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and
are without prejudice to permissions / approvals, if any, required under any
other law.
Yours faithfully,
(C.D. Srinivasan)
Chief General Manager
Encl: Annex
[Annex to A.P.(DIR Series)
Circular No.30 dated 04.09.2013
Clarifications on Overseas Direct Investments
| S. No. |
Query |
Answer / Clarification |
| 1. |
Whether an Indian Party (IP) can make fresh financial commitments in a JV/WOS
already set-up/ acquired on or before August 14, 2013 [i.e. date of issue of
A.P. (DIR Series) Circular No. 23]? |
An IP can make fresh financial commitments in the existing JV / WOS (including
for the purpose of setting up of/acquiring step down subsidiaries outside India)
only up to the revised limit of 100%, under the automatic route. Any financial
commitment beyond the 100% cap shall require prior approval of the Reserve Bank
under the approval route for ODI. |
| 2. |
What happens if the fresh financial commitments, which are up to the earlier
limit of 400%, have been committed on or before August 14, 2013 by the Indian
Party? Would such cases attract the provisions of the present circular?
|
In case of an already contracted/committed financial commitment for an existing
JV/WOS, the earlier limit of 400%, under the automatic route, would apply. The
onus of ensuring the veracity/authenticity of the contract/commitment before
permitting remittances will lie with the designated AD bank. Such cases should
be immediately reported post facto to RBI by the AD banks. |
| 3. |
For setting up or acquiring a new JV / WOS, for which contract / agreement has
been put in place on or before August 14, 2013, whether the new directions of
100% shall be applicable or the existing 400%? |
In this case also the dispensation given in 2 above would apply i.e.
applicability of automatic route upto 400% of net worth and post facto reporting
of such cases to RBI immediately by the AD banks. |
| 4. |
What will be the status of an application, for financial commitment in a JV /
WOS, which are already forwarded to the AD / RBI, on or before August 14, 2013,
under the automatic route / approval route of 400%? |
All applications received by the Reserve Bank or/and an AD bank on or before
August 14, 2013 would be examined and dealt with by the Reserve Bank or/and an
AD bank under the earlier guidelines only, i.e., guidelines prior to August 14,
2013. |
| 5. |
How will the 100% limit be calculated for new JV/WOS? Will the earlier
investments made by the Indian Party be also reckoned towards this 100% or not?
|
Yes, it will be reckoned, subject to the answers/clarifications given in this
Annex. |
| 6. |
Whether an Indian Party, making fresh financial commitment in an existing
overseas JV / WOS of another Indian Party (either by way of transfer of existing
stake or by way of fresh contribution), shall qualify for 100% limit?
|
Yes. This would be treated as fresh financial commitment by the new Indian Party
and it would have to be within the revised limit of 100%, under the automatic
route. |
| 7. |
In para 3 of the Circular, term ‘Government of India’ has been prescribed.
Keeping in view that all the proposals of ODI by Navratna PSUs / OVL / OIL are
not approved by the GoI, whether all the proposals need to be approved by the
GoI for being eligible under the automatic route without any limit?
|
The term ‘Government of India’ may be considered to read as the 'Competent
Authority’. ‘Competent Authority’, depending on the amount involved, would be
(1) Board of Directors of the respective PSU, (2) Empowered Committee of the
Secretaries (ECS); and (3) Cabinet Committee on Economic Affairs (CCEA) as laid
down in paragraph 2 of
A.P. (DIR Series) Circular No. 59 dated May 18, 2007. |
Note : Overseas Direct Investment by an Indian Party (IP) for the purpose of
A.P. (DIR Series) Circular No. 23 dated August 14, 2013 and this Circular would
mean the total financial commitment as laid down in Regulation 2 (f) of
Notification No. FEMA.120/RB-2004 dated July 7, 2004, as amended from time to
time by an IP and includes investment in equity, loan, corporate guarantee or
bank guarantee [backed by a collateral or guarantee by the IP], performance
guarantee (upto 50% of the performance guarantee), creation of charge over
movable and immovable assets, pledge of shares, etc.