RBI clarifies on overseas investment limits for residents

Reserve Bank of India (RBI) has clarified that all financial commitments on overseas direct investment (ODI) made by an Indian party on or before 14 August 2013, in compliance with the earlier limit of 400 per cent of net worth under the automatic route, will continue to be allowed and that such investments will not be subject to any unwinding or approval from the RBI.

Also, RBI said the new rules, which limit the ODI financial commitments for an Indian party at 100 per cent of its net worth, will not apply to financing out of EEFC account or out of funds raised by way of ADRs / GDRs.

RBI has also retained the limit of 400 per cent of the net worth of the Indian party for investments funded by way of eligible external commercial borrowing (ECB) as per the extant ECB guidelines.

However, an Indian party can make fresh financial commitments in the existing joint venture or wholly-owned subsidiary (WOS), including for the purpose of setting up of or acquiring step-down subsidiaries outside India, only up to the revised limit of 100 per cent, under the automatic route.

Any financial commitment beyond the 100 per cent cap would require prior approval of the Reserve Bank under the approval route for ODI, RBI said.

In case of financial commitment already contracted for an existing JV / WOS, the earlier limit of 400 per cent, 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 dealer bank. Concerned dealer banks should also immediately report such cases to the RBI.

All applications received by the RBI or / and an AD bank on or before 14 August 2013 would be examined and dealt with under the earlier guidelines.

The 100-per cent limit will be calculated for new JV / WOS on the basis of earlier investments made, subject to certain clarifications.

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) would be treated as fresh financial commitment and it should have to be within the revised limit of 100 per cent, under the automatic route.

RBI said the clarifications regarding applicability of the revised guidelines on overseas direct investment (ODI) have been issued to facilitate genuine outward investment requirements of Indian companies.