RBI further liberalises overseas investment norms

Mumbai, Mar 28: Reserve Bank of India (RBI) has liberalised the overseas investment norms further with a view to grant more operational flexibility to the Indian corporates in their expansion abroad and has also allowed star export houses to set up their subsidies or joint ventures in other countries.

With a view to enabling recognised star exporters with a proven track record and a consistently high export performance to reap the benefits of globalisation and liberalisation, RBI allowed the proprietary or unregistered partnership firms to set up their subsidiaries or joint ventures outside India, with prior approval of Reserve Bank.

In a directive to all authorised foreign exchange dealers, including commercial banks, RBI informed that the partnership or proprietorship export firm must be a DGFT (Director General of Foreign Trade) recognised star export house (export exceeding Rs 15 crore) per annum.

Banks should be satisfied that the exporter is KYC (know your customer) compliant and is engaged in the proposed business with a proven track record with export outstanding not over 10 per cent of the average export realisation of the preceding three years.

The amount of investment outside India should not exceed 10 per cent of the average of three year export realisation or 200 per cent of the net owned funds of the firm, whichever is lower, the RBI notification said.

RBI gas also enlarged the scope of guarantees covered under the automatic route for the Indian corporates.

Accordingly, Indian entities may offer any forms of guarantee-- corporate or personal, primary or collateral, guarantee by the promoter company and guarantee by group company, sister concern or associate company in India.

Presently, only parent corporate bodies are permitted to offer guarantees on behalf of their wholly-owned subsidiaries (WOSs) and joint ventures (JVs), under the automatic route and issue of personal, collateral and third party guarantees which require prior approval of Reserve Bank.

With a view to simplify the procedure, RBI has decided to allow all 'financial commitments', including all forms of guarantees within the overall prescribed ceiling for overseas investment of the Indian party (which is currently within 200 per cent of the net worth of the investing company).

While no guarantee is 'open-ended' and the amount of the guarantee should be specified upfront and are required to be reported to RBI, it clarified that guarantees issued by banks in India in favour of WOSs and JVs outside India, would be outside this ceiling and would be subject to prudential norms issued by RBI from time-to-time.

RBI also liberalised the automatic route of disinvestment in its WOSs and JVs abroad in order to enable companies to have operational flexibility according to their commercial judgment.

Accordingly, Indian corporates may disinvest without prior approval of the Reserve Bank in the categories where the JV or WOS is listed in the overseas stock exchange and the Indian promoter company is listed on a stock exchange in India and has a networth of not less than Rs 100 crore.

This is also applicable where the Indian promoter is an unlisted company and the investment in overseas venture does not exceed USD 10 million.

The Indian party is required to submit details of the disinvestment through its designated authorised dealer bank within 30 days from the date of disinvestment.

Presently, all disinvestments that involve a 'write off' (where the amount repatriated on disinvestment is less than the amount of the original investment), they need prior approval of the Reserve Bank.

UNI