| Date: |
25-11-2014
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| Notification No: |
RBI/2014-15/316 A.P. (DIR Series) Circular No. 41
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| Issuing Authority: |
RBI
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| Type: |
A.P.D.(Series) Circulars
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| File No: |
RBI/2014-15/316 |
| Subject: |
Routing of funds raised abroad to India
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RBI/2014-15/316
A.P. (DIR Series) Circular No. 41
November 25, 2014
To
All Category – I Authorised Dealer Banks
Madam/ Sir,
Routing of funds raised abroad to India
Attention of Authorised Dealers – Category - I (AD Category – I) banks is
invited to the extant regulatory framework under the Foreign Exchange Management
Act (FEMA), 1999 related to the External Commercial Borrowings (ECB), issuance
of guarantees, and overseas direct investment from India.
- It has come to our notice that some Indian companies are accessing
overseas market for debt funds through overseas holding / associate /
subsidiary / group companies. It has also been reported that such borrowings
are raised at rates exceeding the ceiling applicable in terms of extant FEMA
regulations and that the funds so raised are routed to the Indian companies
which accounts for sole/major operations of the group. Different
modalities/structures are resorted to for channeling such funds for Indian
operations including investment in rupee bonds floated by the Indian
company.
- On a review of the matter in light of the existing regulatory
framework, it is clarified as under:
Indian companies or their AD Category – I banks are not allowed to issue any
direct or indirect guarantee or create any contingent liability or offer any
security in any form for such borrowings by their overseas holding /
associate / subsidiary / group companies except for the purposes explicitly
permitted in the relevant Regulations.
Further, funds raised abroad by overseas holding / associate / subsidiary /
group companies of Indian companies with support of the Indian companies or
their AD Category – I banks as mentioned at (i) above cannot be used in
India unless it conforms to the general or specific permission granted under
the relevant Regulations.
Indian companies or their AD Category – I banks using or establishing
structures which contravene the above shall render themselves liable for
penal action as prescribed under FEMA, 1999.
- AD Category – I banks may bring the contents of this Circular to
the notice of their constituents and customers.
- The directions contained in the 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 required, if any,
under any other law.
Yours faithfully
B P Kanungo
Principal Chief General Manager
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