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RBI's new overseas investment policy

Published on Fri, Jun 01,2012 | 23:45, Updated at Mon, Jun 04 at 19:38Source : CNBC-TV18 |   Watch Video :

As The Firm has been reporting RBI and the Finance, Commerce & External Affairs ministries have been mulling over the role of multi-layered structures in overseas investments made by Indian companies. The Firm had reported that on the April 26 - a meeting was held by RBI & the government to consult with industry on multi-layered ODIs.

Thereafter CNBC TV18's Ronojoy Banerjee reported on the subsequent letter that RBI sent the Finance ministry, suggesting all overseas investments be moved from the automatic route to the approval route. Well, now it seems not all overseas investments will need prior RBI approval. Here's what sources say

That  RBI will soon draw up a new Overseas Direct Investment policy relating to multi-layered structures. This has been prompted by a couple of recent developments. The Government, for a variety of reasons, had recommended banning all multi-layered structures. RBI after brain storming with various stake holders suggested it would be fairer to industry to put such structures under the approval route as opposed to doing away with them altogether. Also RBI has been concerned about the lack of full disclosures, especially regarding corporate guarantees given to secondary & tertiary layers of entities, in case of a breach of the 400% limit.

Hence once feedback is received from the finance and commerce ministries, RBI may draw up a new overseas investment policy that
- brings certain kinds of clearly defined or specified 'multi-layered' structures under an approval route
- reinforces that existing investment + guarantee limits (400%) are not breached by these multi-layered structures
- ensures these structures are not being used to invest in prohibited sectors (real estate & banking)
- makes more disclosures regarding all layers of investments (APR currently provides only limited information)

-encourages increased 'inflows from outward FDI' by way of dividend, royalty, capital gain etc & has taken up these matters with the Govt

It seems RBI's would like that the bulk of overseas investment structures continue under the automatic route and by defining 'multi-layered' the regulator will ensure that only certain types of complex structures are brought to it for approval. Thus allaying potential fears of a regulatory logjam. Over a period of time, once more information has been gathered and structures better understood, the regulator is also keen that the information will help evolve policy and reduce the number of 'approvals' required. And before any of this takes place - that is, a new ODI policy is announced, RBI will consult with industry, as has been its practice. Those consultations will also help clarify other issues regarding corporate guarantees and the like.

So depending on the feedback from the Finance & Commerce Ministries we could soon see a complete overhaul of the ODI regime in India. And hopefully it will bring only specific 'complex' structures under the approval route leaving the rest to the automatic route.

In Mumbai, Menaka Doshi

This story is based on information collected from sources. RBI did not comment on this.


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