THE Reserve
Bank of India (RBI) has issued certain clarifications vide AP (DIR Series)
Circular No. 30 dated September 04, 2013 with respect to the applicability
of the revised guidelines in respect of Overseas Direct Investment (ODI)
notified vide A.P. (DIR Series) Circular No.23 dated August 14, 2013 to facilitate
genuine outward investment requirements of the Indian companies.
Key
features of the same are as follows:
(i) 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.
(ii) 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.
(iii) 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.
(iv) A table indicating queries and clarification thereto has been attached
as annex for the benefit of all stakeholders with this Press Release.
(v) Necessary amendments to Notification No.FEMA.120/RB-2004 dated July 7,
2004 will be accordingly notified in due course by the Reserve Bank of India.
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S. No.
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Query
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Clarification
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1.
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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]?
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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.
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2.
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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?
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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.
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3.
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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%?
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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.
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4.
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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%?
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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.
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