Norms For Investments In Overseas Ventures Eased
The Reserve Bank of India (RBI) has relaxed provisions for Indian direct investment in joint ventures (JV) and wholly-owned subsidiaries (WOS) abroad under the fast track route (FTR).
The FTR allows clearance within a month. Under the new provisions, besides export earnings, other forex earnings will also be considered for FTR clearance. The amount of investment will not exceed 25 per cent of annual average export/foreign exchange earnings of the applicant (other than equity exports to the JV/WOS abroad) in the preceding three years, subject to an overall limit of $4 million.
Moreover, earlier, the amount of investment had to be fully repatriated within five years from the date of approval.
Now, the five years will be computed with effect from the date of first remittance of equity, or of first shipment of equity exports, or the due date for receipt of entitlements from the foreign concern to be capitalised, whichever is earlier.
In case the applicant company does not have the requisite export/forex earnings for clearance under FTR, the export performance/forex earnings of the parent or subsidiary companies of the applicants will be considered if :
(1) The parent company has not availed of the FTR facility itself during the relevant period
(2) The parent furnishes a suitable letter of disclaimer in favour of the applicant company
(3) The parent company's stake in the applicant is at least 51 per cent.
For overseas investment in the financial services sector, certain additional norms are to be complied with, viz :
(a) a good track record of a minimum three years and registration as a category 1 merchant banker with Sebi or as a non-banking finance company registered with the RBI; (b) a minimum net worth (paid up capital plus free reserves) of Rs 15 crore; and, (c) fulfillment of prudential norms relating to capital adequacy ratio of eight per cent.
The FTR facility will be available only once in three years including the year in which the investment is made. However, within the overall limits of $4 million and its entitlements of 25 per cent of average annual export/forex earnings, the party may be permitted to invest equity/provide guarantee, etc. on the FTR on more than one occasion and in more than one JV/WOS abroad.
The normal route, however, may be availed of without these restrictions.
Another relaxation pertains to the requirement to undertake a technical appraisal of the project by any designated agency like the IDBI, ICICI, Exim Bank, and the State Bank of India.
Henceforth, such an analysis is not required. However, a project feasibility report and a statement from a chartered accountant verifying the ratios, projections made, etc must accompany the applications (both fast track and normal routes).
However, in respect of the normal route, if the special committee so desires, the applicant might have to obtain an appraisal report from an agency.