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This circular states that henceforth the RBI will not issue any instructions under the FEMA with respect to deduction of tax at source at the time of making remittances to the non-residents. Banks are, as a result, now required to comply with the requirement of the applicable tax laws in this regards.
This circular provides that Authorised Persons are now required to maintain and preserve records for a period of at least five years as against the present requirement of to maintaining and preserving records for a period of at least ten years.
Risk
Management and Inter-bank Dealings: Guidelines relating to
participation of Foreign Portfolio Investors (FPIs) in the Exchange
Traded Currency Derivatives (ETCD) market
Presently, persons
resident outside India are not allowed to participate in the currency
futures and exchange traded currency options market in India
This
circular now permits eligible foreign portfolio investors (FPI) to
enter into currency futures or exchange traded currency options
contracts subject to the following terms and conditions: –
a. F PI
can access to the currency futures or exchange traded currency options
for the purpose of hedging the currency risk arising out of the market
value of their exposure to Indian debt and equity securities.
b. F
PI are permitted to participate in the currency futures/exchange traded
options market through any registered/recognised trading member of the
exchange concerned.
c. F PI are permitted to take position – both
long (bought) as well as short (sold) – in foreign currency up to US $
10 million or equivalent per exchange without having to establish
existence of any underlying exposure. This limit will be both day-end as
well as intra-day.
d. FPI cannot take a short position beyond US $ 10 million at any time.
e.
F PI can take a long position beyond US $ 10 million in any exchange if
it has an underlying exposure. The onus of ensuring the existence of an
underlying exposure is on the FPI concerned.
f. E xchanges are free
to impose additional restrictions as prescribed by SEBI for the purpose
of risk management and fair trading.
g. E xchange/clearing
corporation has to provide FPI wise information on day end open position
as well as intra-day highest position to the respective custodian
banks. The custodian banks will aggregate the position of each FPI on
the exchanges as well as the OTC contracts booked with them (i.e., the
custodian banks) and other banks. If the total value of the contracts
exceeds the market value of the holdings on any day, the concerned FPI
will be liable to such penal action as may be laid down by the SEBI and
RBI.
RBI has issued the Notifications No.FED.1/ED (GP) – 2014
dated 10th June, 2014 (Currency Futures (Reserve Bank) Amendment
Directions, 2014) and No. FED. 2/ED (GP) – 2014 dated 10th June, 2014
(Exchange Traded Currency Options (Reserve Bank) Amendment Directions,
2014) to give effect to the above.
Presently:
1. D omestic participants in the currency futures and exchange traded options markets are not required to have any underlying exposure. While domestic participants in the over-the-counter (OTC) derivatives markets are compulsorily required to have underlying exposure.
2. Banks are not allowed to offset their positions in the ETCD market against the positions in the OTC derivatives market and are also not allowed to carry out any proprietary trading in the ETCD market.
This circular provides that: –
1. Domestic participants in the currency futures and exchange traded currency options will have to comply with the following terms and conditions:
a. Domestic participants are allowed to take a long (bought) as well as short (sold) position up to US $ 10 million per exchange without having to establish the existence of any underlying exposure.
b. D omestic participants who want to take a position exceeding US $ 10 million in the ETCD market will have to establish the existence of an underlying exposure. The procedure to be followed for the same is given in the circular.
2. Banks can:
a. U ndertake proprietary trading in the ETCD market within their Net Open Position Limit (NOPL)/limit imposed by the exchanges for the purpose of risk management and preserving market integrity.
b. N et/offset their positions in the ETCD market against the positions in the OTC derivatives markets.
There will be no upper limit on the position that can be taken by any participant, resident or non-resident, in the ETCD market, except limits that are imposed by SEBI for risk management and preserving market integrity.
Export and Import of Currency: Enhanced facilities for residents and non-residents
Presently,
a person resident in India can take outside India or having gone out of
India on a temporary visit, can bring into India (other than to and
from Nepal and Bhutan) Indian currency notes up to an amount not
exceeding Rs.10,000. This circular has raised the said limit of Rs.
10,000 to Rs. 25,000 and provides that: 1. A ny person resident in India
can take outside India (other than to Nepal and Bhutan) or having gone
out of India on a temporary visit, can bring into India (other than from
Nepal and Bhutan) Indian currency notes up to an amount not exceeding
Rs.25,000.
2. A ny person resident outside India, who is not a
citizen of Pakistan and Bangladesh and who is also not a traveller
coming from and going to Pakistan and Bangladesh, and visiting India,
can take outside India/ bring into India Indian currency notes up to an
amount not exceeding Rs.25,000. This facility is available only the
person is exiting India/entering India only through an airport. Thus,
this facility of bringing into India or taking out of India, Indian
currency notes up to Rs. 25,000 is not available to persons’ resident
outside India who are coming into India/going out of India via land/sea
borders.
Borrowing and Lending in Rupees – Investments by persons resident outside India in the tax free, secured, redeemable, non-convertible bonds
Presently, a person resident in India who has borrowed in Rupees from a person resident outside India cannot use the said funds for any investment, whether by way of capital or otherwise, in any company or partnership firm or proprietorship concern or any entity, whether incorporated or not, or for relending.
This circular now permits resident entities/companies in India who are authorised to issue tax-free, secured, redeemable, non-convertible bonds in Rupees to persons resident outside India to use such borrowed funds for lending & investment as under: –
(a) For on lending/re-lending to the infrastructure sector; and
(b) For keeping in fixed deposits with banks in India pending utilisation by them for permissible end-uses.
This circular permit Holding Companies/Core Investment Companies (CIC) to raise ECB under the automatic route/approval route, as the case may be, for project use in SPV subject to the following terms and conditions:
i. The business activity of the SPV should be in the infrastructure sector as defined in the extant ECB guidelines.
ii. The infrastructure project must be implemented by the SPV established exclusively for implementing the project.
iii. ECB proceeds must be utilized either for fresh capital expenditure or for refinancing of existing Rupee loans (under the approval route) availed of from the domestic banking system for capital expenditure.
iv. ECB for SPV can be raised for up to 3 years after the Commercial Operations Date of the SPV.
v. The SPV has to give an undertaking that no other method of funding, such as, trade credit (if for import of capital goods), etc. will be used for the portion of fresh capital expenditure that is financed through ECB.
vi. ECB proceeds must be kept in a separate escrow account pending utilization for permissible end-uses and use of such proceeds must be strictly monitored by the bank for permissible uses.
vii. Holding Companies that come under the Core Investment Company (CIC) regulatory framework have to comply with the following additional terms and conditions: –
a) ECB availed is within the ceiling of leverage stipulated for CIC, i.e., their outside liabilities including ECB must not be more than 2.5 times of their adjusted net worth as on the date of the last audited balance sheet; and
b) In case of CIC with asset size below Rs. 100 crore, ECB availed of must be on fully hedged basis.
Presently, banks can borrow funds from international/ multilateral financial institutions up to a limit of 100% of their unimpaired Tier I capital as at the close of the previous quarter or $ 10 million (or its equivalent), whichever is higher (excluding borrowings for financing of export credit in foreign currency and capital instruments) for the purpose of general banking business (but not for capital augmentation) and also swap the same at a concessional rate with RBI. This facility is available up to 30th November, 2013.
This circular provides that where any bank is being sanctioned any loan from any international/ multilateral financial institutions and is receiving a firm commitment in this regard on or before 30th November, 2013, it will be allowed to enter into a forward-forward swap under the first leg of which the bank can sell forward the contracted amount of foreign currency corresponding to the loan amount for delivery up to 31st December, 2013. However, if the bank is not able to deliver the contracted amount of foreign currency on the contracted date, it will have to pay the difference between concessional swap rate contracted and the market swap rate plus one hundred basis points.
This circular states that the present all-in-cost ceiling for trade credits, as mentioned below, will continue till 30th June, 2014: –
The all-in-cost ceiling will include arranger fee, upfront fee, management fee, handling / processing charges, out of pocket and legal expenses, if any.
This circular, subject to certain terms and conditions, now permits banks (called Partner Banks) in India to credit the proceeds of foreign inward remittances received under Rupee Drawing Arrangement (RDA) directly to the KYC compliant beneficiary bank accounts through electronic mode, such as, NEFT, IMPS, etc.
Presently, resident individuals are allowed to book foreign exchange forward contracts, without production of underlying documents, up to a limit of US $ 100,000 on self-declaration basis, to hedge/ manage their actual/anticipated foreign exchange exposures.
This circular now permits all resident individuals, firms and companies, to book foreign exchange forward contracts, up to US $ 250,000 on the basis of a simple declaration (as per format annexed to this Circular) without any requirement of further documentation, to hedge/manage their actual or anticipated foreign exchange exposures.
Presently, FII, QFI, long term investors and FPI, registered with SEBI, can invest in Government securities including T-Bills (sub-limit of US $ 5.50 billion) and dated Government Securities (sub-limit of US $ 10 billion) within the overall limit of US $ 30 billion.
This circular provides that FII, QFI, long term investors and FPI, registered with SEBI, can now invest in Government dated securities having residual maturity of 1 year and above and existing investments in T-bills and Government dated securities of less than 1 year residual maturity will be allowed to taper off on maturity/sale.
The revised position is as under: –
The Regional offices at Panaji and Kochi can compound the above offences provided the amount involved is less than Rs. 10,000,000. All other Regional Offices can compound the above offences without any monetary limit.
For compounding of any other offence application will have to be made, as is the present procedure, to Cell for Effective Implementation of FEMA (CEFA), Foreign Exchange Department, 5th floor, Amar Building, Sir P. M. Road, Fort, Mumbai 400001.
This circular contains the revised guidelines with respect to Merchanting Trade Transactions. These guidelines will apply to merchanting trade transactions initiated after 17th January, 2014.
Merchanting traders must be genuine traders of goods and not mere financial intermediaries. Confirmed orders have to be received by them from the overseas buyers. Handling bank must satisfy themselves about the capabilities of the merchanting trader to perform the obligations under the order. The overall merchanting trade must result in reasonable profits to the merchanting trader.
The highlights of the said guidelines are as under: –
i) For a trade to be classified as merchanting trade the following conditions must be satisfied: –
a. Goods acquired must not enter the Domestic Tariff Area; and
b. The state of the goods must not undergo any transformation.
ii) Goods involved in the merchanting trade transactions (transaction) must be those that are permitted for exports / imports under the prevailing Foreign Trade Policy (FTP) of India, as on the date of shipment and all the rules, regulations and directions applicable to exports (except Export Declaration Form) and imports (except Bill of Entry), are complied with for the export leg and import leg respectively.
iii) The bank handling the transaction must be satisfied with the bonafides of the transactions.
iv) Both the legs of the transaction must be routed through the same bank.
v) The entire transaction must be completed within an overall period of nine months and there must not be any foreign exchange outlay beyond four months.
vi) The commencement date would be the date of shipment/export leg receipt/import leg payment, whichever is first. The completion date would be the date of shipment/export leg receipt/import leg payment, whichever is the last.
vii) Short-term credit either by way of suppliers’ credit or buyers’ credit will be available for merchanting trade transactions, to the extent not backed by advance remittance for the export lag, including the discounting of export leg LC by a bank, as in the case of import transactions.
viii) In case advance against the export leg is received by the merchanting trader, the bank must ensure that the same is earmarked for making payment for the respective import leg.
ix) Merchanting traders can make advance payment for the import leg on demand made by the overseas seller. In case where inward remittance from the overseas buyer is not received before the outward remittance to the overseas supplier, the bank can provide credit facility based on commercial judgement. However, where the advance payment for the import leg is more than US $ 200,000 per transaction, than advance must be given against bank guarantee/LC from an international bank of repute except in cases and to the extent where payment for export leg has been received in advance.
x) Letter of credit to the supplier is permitted against confirmed export order keeping in view the outlay involved and provided the completion of the transaction will happen within nine months.
xi) Payment for the import leg can also be made out of the balances in Exchange Earners Foreign Currency Account (EEFC) of the merchant trader.
xii) The handling bank must ensure one-to-one matching in case of each transaction and report defaults in any leg by the traders to the concerned Regional Office of RBI, on half yearly basis in the format as annexed to the circular, within 15 days from the close of each half year, i.e. June and December.
xiii) The names of defaulting merchanting traders, where outstandings reach 5% of their annual export earnings, will be caution-listed.
Presently, exporters are allowed to hedge currency risk on the basis of a declaration of exposure up to an eligible limit which is the average of the last 3 financial years’ (April to March) actual export turnover or last year’s actual export turnover, whichever is higher. Similarly, importers are allowed to hedge up to an eligible limit which is 25% of the average of the last three financial years’ actual import turnover or last year’s actual import turnover, whichever is higher. All forward contracts booked under this facility by both exporters and importers have to be on fully deliverable basis. In case of cancellation, exchange gain, if any, cannot be passed on to the exporter/importer by the bank.
This circular provides that, exporters/importers will now be entitled to the gains/losses resulting from the cancellation of up to 75% of the contracts booked within the eligible limit (as mentioned above). Contracts booked in excess of 75% of the eligible limit will be on deliverable basis and cannot be cancelled. Hence, in the event of cancellation the exporter/ importer will have to bear the loss but will not be entitled to receive the gain.
Foreign Portfolio Investor – investment under Portfolio Investment Scheme, Government and Corporate debt
The present scheme in respect of Portfolio Investment in India by FII & QFI has been replaced by a new scheme called the Foreign Portfolio Investment Scheme.
Important features of the said new scheme are as under: –
a. Portfolio investor registered in accordance with SEBI guidelines will now be called ‘Registered Foreign Portfolio Investor (RFPI)’. All existing portfolio investor classes, namely, FII and QFI registered with SEBI will be subsumed under RFPI. b. RFPI may purchase and sell shares and convertible debentures of Indian company through registered broker on recognized stock exchanges in India as well as purchases shares and convertible debentures which are offered to public in terms of relevant SEBI guidelines / regulations.
c. RFPI may sell shares or convertible debentures so acquired:
a) In open offer in accordance with the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011; or
b) In an open offer in accordance with the SEBI (Delisting of Equity shares) Regulations, 2009; or
c) Through buyback of shares by a listed Indian company in accordance with the SEBI (Buyback of securities) Regulations, 1998. d. RFPI may also acquire shares or convertible debentures: –
a) In any bid for, or acquisition of, securities in response to an offer for disinvestment of shares made by the Central Government or any State Government; or
b) In any transaction in securities pursuant to an agreement entered into with merchant banker in the process of market making or subscribing to unsubscribed portion of the issue in accordance with Chapter XB of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009.
e. Subject to applicable composite sectoral cap under FDI policy, RFPI investment will as under: –
a) The individual investment limits for RFPI will be below 10% of the total paid-up equity capital or 10% of the paid-up value of each series of convertible debentures issued by an Indian company; and
b) The aggregate investment limits for RFPI will be below 24% of the total paid-up equity capital or 24% of the paid-up value of each series of convertible debentures issued by an Indian company.
f. RFPI can open a Special Non-Resident Rupee (SNRR) account and a foreign currency account with a bank in India to transfer amounts from foreign currency account to SNRR account at the prevailing market rate for making genuine investments in securities. The bank can transfer repatriable proceeds (after payment of applicable taxes) from SNRR account to foreign currency account.
g. RFPI can invest in government securities and corporate debt subject to limits specified by the RBI and SEBI from time to time.
h. All investments by RFPI will be subject to the SEBI (FPI) Regulations 2014, as modified by SEBI /Government of India from time to time.
i. RFPI can trade in all exchange traded derivative contracts on the stock exchanges in India subject to the position limits as specified by SEBI from time to time.
j. RFPI can offer cash or foreign sovereign securities with AAA rating or corporate bonds or domestic Government Securities, as collateral to the recognized Stock Exchanges for their transactions in the cash as well as derivative segment of the market.
Any FII that holds a valid certificate of registration from SEBI will be deemed to be a RFPI till the expiry of the block of three years for which fees have been paid as per the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995.
A QFI can continue to buy, sell or otherwise deal in securities subject to the SEBI (FPI) Regulations, 2014 for a period of one year from the date of commencement of these regulations, or until he obtains a certificate of registration as foreign portfolio investor, whichever is earlier.
All investments made by a FII/QFI in accordance with the regulations prior to registration as RFPI shall continue to be valid and taken into account for computation of aggregate limit.
A RFPI is required to report transactions to RBI as is presently being reported by FII in LEC Form.
Presently, banks are required to report on a quarterly basis to RBI details of remittances (number of applicants and total amount remitted) made by NRI, PIO and Foreign Nationals from their NRO accounts.
This circular has changed the reporting period from quarterly to monthly. As a result banks will have to report to RBI, in the revised format Annexed to the circular, details of remittances out of NRO accounts, including transfers from NRO account to NRE account made by NRI, PIO and Foreign Nationals within 7 days of the end of the reporting month.
This circular states that for the quarter ended September 30, 2013 reporting of data by banks to RBI on issuance of guarantees/LOU/LOC has to be done by way of a consolidated statement, at quarterly intervals using the eXtensible Business Reporting Language (XBRL) platform and not by way of manual submission (followed MS-Excel file through email). For this purpose banks may login to the site https:// secweb.rbi.org.in/orfsxbrl/ using their User name, Password and Bank code.
Banks who have already submitted the manual statement (and MS-Excel file) for the quarter ended 30th September, 2013 are also required to report the same data online using the XBRL platform. From the quarter ending 31st December, 2013 onwards, the data must be submitted in soft form on XBRL platform only by 10th of the following month.
Foreign Direct Investment (FDI) into a Small Scale Industrial Undertakings (SSI)/Micro & Small Enterprises (MSE) and in Industrial Undertaking manufacturing items reserved for SSI/MSE
Presently, an India Company which is a small scale industrial unit and which is not engaged in any activity or in manufacture of items included in Annex A, can issue shares or convertible debentures to a person resident outside India, to the extent of 24% of its paid-up capital. The said Company can issue shares in excess of 24% of its capital if:
(a) It has given up its small scale status.
(b) It is not engaged or does not propose to engage in manufacture of items reserved for small scale sector.
(c) It complies with the ceilings specified in Annex B to Schedule I.
This circular has aligned the policy on FDI with respect to investment in Small Scale Industrial unit and in a company which has de-registered its small scale industry status and is not engaged or does not propose to engage in manufacture of items reserved for small scale sector in lines with provisions of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006. As a result:
(i) A company which is reckoned as Micro and Small Enterprises (MSE) (earlier Small Scale Industries) in terms of MSMED Act, 2006 and not engaged in any activity/sector mentioned in Annex A to schedule 1 can issue shares or convertible debentures to a person resident outside India, subject to the limits prescribed in Annex B to schedule 1, in accordance with the entry routes specified therein and the provision of FDI Policy, as notified from time to time.
(ii) Any Industrial undertaking, with or without FDI, which is not an MSE, having an Industrial License under the provisions of the Industries (Development & Regulation) Act, 1951 for manufacturing items reserved for manufacture in the MSE sector can issue shares in excess of 24% of its paid up capital with prior approval from FIPB.
In terms of the provisions of MSMED Act: –
(i) In the case of the enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the Industries (Development and Regulation) Act, 1951: –
(a) A micro enterprise means where the investment in plant and machinery does not exceed Rs. 25 lakh.
(b) A small enterprise means where the invest ment in plant and machinery is more than Rs. 25 lakh but does not exceed Rs. 5 crore.
(ii) In the case of the enterprises engaged in providing or rendering services: –
(a) A micro enterprise means where the investment in equipment does not exceed Rs. 10 lakh.
(b) A small enterprise means where the investment in equipment is more than Rs. 10 lakh but does not exceed Rs. 2 crore.
At present, the limit for undertaking permitted transactions under the Rupee Drawing Arrangements (RDA), as mentioned in the Memorandum of Instructions for Opening and Maintenance of Rupee/ Foreign Currency Vostro Accounts of Non-resident Exchange Houses, is Rs. 2,00,000.
This circular has, with immediate effect, increased the said limit for undertaking permitted transactions under the Rupee Drawing Arrangements (RDA) from Rs. 2,00,000 to Rs. 5,00,000. Press Note No. 2 (2014 Series) D/O IPP File No: 12/10/2011-FC.1 dated 4th February, 2014
Policy on Foreign Investment in the Insurance Sector – Amendment of Paragraph 6.2.17.7 of ‘Circular 1 of 2013 – Consolidated FDI Policy’
This Press Note has, with effect from 5th April, 2013, replaced Paragraph 6.2.17.7 with respect to FDI in the Insurance Sector as under:
This circular permits recipient banks to credit foreign inward remittances received under MTSS directly to the bank accounts of beneficiaries that are KYC compliant, subject to certain terms and conditions, through electronic mode, such as NEFT, IMPS, etc. The partner bank must clearly mark the direct-toaccount remittances to indicate to the Recipient Bank that it is a foreign inward remittance.
In cases where the bank accounts of the beneficiaries are not KYC compliant, the Recipient Bank has to carry out KYC/CDD before the remittance can be credited the bank account or allowed to be withdrawn.
As a result, entire shipping documents have to be reported in the new system. However, the old shipping documents will continue to be reported in the old system till the completion of the cycle. Both, the old and new systems will run parallel to each other for some time and the date of discontinuance of the old system will be communicated to the banks.
This Circular will remain in force until superseded in totality or in part thereof. Reference to any statute or legislation made in this Circular will include modifications, amendments or re-enactments thereof. This circular is divided into 7 Chapters and contains 11 Annexures.
This circular clarifies that: –
1. Refineries are allowed to import dore up to 15% of their gross average viable quantity based on their license entitlement in the first two months for making this available to the exporters on First in First out (FIFO) basis. Thereafter, the quantum of gold dore to be imported has to be determined lot-wise on the basis of export performance.
2. Before the next import, not more than 80% can be sold domestically.
3. The dore so imported must be refined and must be released on FIFO basis following the 20:80 principle.
4. Subsequent imports will be allowed only up to 5 times the quantum for which proof of export has been submitted and this will be on accrual basis.
Notification No. FEMA. 296/2014-RB dated 3rd March, 2014, vide G.S.R. No. 270(E) dated 7th April 2014
Foreign Direct Investment in Pharmaceuticals sector – clarification
This circular states that, with immediate effect, the ‘non-compete’ clause will not be permitted in the case of FDI in Pharmaceuticals sector, except with FIPB approval. Hence, whenever parties want to incorporate the ‘non-compete’ clause in their agreements FDI will have to be under the Approval Route.
Notification No. FEMA. 298 /2014-RB dated 13th March, 2014 c.f. G.S.R. No.190(E) dated 19th March, 2014
Foreign Direct Investment (FDI) in Limited Liability Partnership (LLP)
This
circular permits Foreign Direct Investment (FDI) in Limited Liability
Partnerships (LLP) that are formed and registered under the Limited
Liability Partnership Act, 2008.
The details scheme, procedure and forms to be used for the same are annexed to this Circular.
Highlights
of the scheme – called Foreign Direct Investment (FDI-LLP) in Limited
Liability Partnerships (LLPs) formed and registered under the Limited
Liability Partnership Act, 2008 – are as under: –
1. Eligible Investors
A
person resident outside India or an entity incorporated outside India
shall be eligible investor for the purpose of FDI in LLP. However, the
following persons shall not be eligible to invest in LLP: –
(i) A citizen/entity of Pakistan and Bangladesh or
(ii) A SEBI registered Foreign Institutional Investor (FII) or
(iii) A SEBI registered Foreign Venture Capital Investor (FVCI) or
(iv) A SEBI registered Qualified Foreign Investor (QFI) or
(v)
A Foreign Portfolio Investor registered in accordance with Securities
and Exchange Board of India (Foreign Portfolio Investors) Regulations,
2014 (RFPI).
2. Eligibility of LLP for accepting foreign Investment
(i)
An LLP, existing or new, operating in sectors / activities where 100%
FDI is allowed under the automatic route of FDI Scheme is eligible to
receive FDI.
(ii) An LLP engaged in the following sectors / activities is not eligible to accept FDI: –
a)
Sectors eligible to accept 100% FDI under automatic route but are
subject to FDI-linked performance related conditions (for example
minimum capitalisation norms applicable to ‘Non-Banking Finance
Companies’ or ‘Development of Townships, Housing, Built-up
infrastructure and Construction-development projects’, etc.); or
b)
Sectors eligible to accept less than 100% FDI under automatic route; or
c) Sectors eligible to accept FDI under Government Approval route; or
d) Agricultural/plantation activity and print media; or
e)
Sectors not eligible to accept FDI i.e. any sector which is prohibited
under the extant FDI policy as well as sectors / activities prohibited
in terms of Regulation 4(b) to Notification No. FEMA 1 / 2000-RB dated
3rd May 2000.
3. Eligible investment
Contribution
to the capital of a LLP would be an eligible investment under the
Scheme. Note: Investment by way of ‘profit share’ will fall under the
category of reinvestment of earnings
4. Entry Route
Any
FDI in a LLP will require prior Government/ FIPB approval. Any form of
foreign investment in an LLP, direct or indirect (regardless of nature
of ‘ownership’ or ‘control’ of an Indian Company) will require
Government/FIPB approval.
5. Pricing
FDI in an
LLP either by way of capital contribution or by way of
acquisition/transfer of ‘profit shares’, will have to be more than or
equal to the fair price as worked out with any valuation norm which is
internationally accepted/adopted as per market practice (hereinafter
referred to as “fair price of capital contribution/profit share of an
LLP”) and a valuation certificate to that effect shall be issued by a
Chartered Accountant or by a practicing Cost Accountant or by an
approved valuer from the panel maintained by the Central Government.
In
case of transfer of capital contribution/profit share from a resident
to a non-resident, the transfer will have to be for a consideration
equal to or more than the fair price of capital contribution/profit
share of an LLP. Further, in case of transfer of capital
contribution/profit share from a non-resident to a resident, the
transfer will have to be for a consideration which is less than or equal
to the fair price of the capital contribution/profit share of an LLP.
6. Mode of payment for an eligible investor
Payment
by an eligible investor towards capital contribution/profit share of
LLP will be allowed only by way of cash consideration to be received: –
i) By way of inward remittance through normal banking channels; or
ii) By debit to NRE/FCNR(B) account of the person concerned.
7. Reporting
(i)
LLP must report to the Regional Office concerned of RBI, through its
bank, at the earliest but not later than 30 days from the date of
receipt of the amount of consideration:
(a) Details of the
receipt of the amount of consideration for capital contribution and
profit shares in Form FOREIGN DIRECT INVESTMENT – LLP (I) together with a
copy/ies of the FIRC/s evidencing the receipt of the remittance
(b) KYC report on the non-resident investor
(c) Valuation certificate (as per paragraph 5 above) as regards pricing.
The Regional Office concerned, will allot a Unique Identification Number (UIN) for the amount reported.
(ii)
The bank in India, receiving the remittance must obtain a KYC report in
respect of the foreign investor from the overseas bank remitting the
amount.
(iii) Disinvestment/transfer of capital contribution or
profit share between a resident and a non-resident (or vice versa) must
be reported within 60 days from the date of receipt of funds in Form
FOREIGN DIRECT INVESTMENT – LLP (II).
8. Downstream investment
a)
An Indian company, having foreign investment (direct or indirect,
irrespective of percentage of such foreign investment), will be
permitted to make downstream investment in an LLP only if both, the
company as well as the LLP, are operating in sectors where 100% FDI is
allowed under the automatic route and there are no FDI-linked
performance related conditions. Onus will be on the LLP accepting
investment from the Indian Company registered under the provisions of
the Companies Act, as applicable, to ensure compliance with downstream
investment requirement as stated above.
b) An LLP with FDI under this scheme will not be eligible to make any downstream investments in any entity in India.
9. Other Conditions
(i)
In case, an LLP with FDI, has a body corporate as a designated partner
or nominates an individual to act as a designated partner in accordance
with the provisions of section 7 of the Limited Liability Partnership
Act, 2008, such a body corporate must be a company registered in India
under the provisions of the Companies Act, as applicable and not any
other body, such as an LLP or a Trust. For such LLP, the designated
partner “resident in India”, as defined under the ‘Explanation’ to
Section 7(1) of the Limited Liability Partnership Act, 2008, will also
have to satisfy the definition of “person resident in India”, as
prescribed u/s. 2(v)(i) of the Foreign Exchange Management Act, 1999.
(ii)
The designated partners will be responsible for compliance with all the
above conditions and also liable for all penalties imposed on the LLP
for their contravention, if any.
(iii) Conversion of a company
with FDI, into an LLP, will be allowed only if the above stipulations
(except the stipulation as regards mode of payment) are met and with the
prior approval of FIPB / Government.
(iv) LLP cannot avail External Commercial Borrowings (ECB).
This circular states that the present all-in-cost ceiling for ECB, as mentioned below, will continue till 30th June, 2014: –
The all-in-cost ceiling will include arranger fee, upfront fee, management fee, handling / processing charges, out of pocket and legal expenses, if any.
This circular contains the amended the instructions issued to Authorised Money Changers (AMC) with respect to establishment of business relationships by corporates. The revised guidelines are as under: –
This circular clarifies that a foreign investor is free to remit funds on cash/TOM/spot basis through any bank of its choice for any permitted transaction. The funds so remitted must be transferred to the designated custodian bank through the banking channel. KYC in respect of the remitter, wherever required, will be the joint responsibility of the bank that has received the remittance as well as the bank that ultimately receives the proceeds of the remittance. The remittance receiving bank is required to issue a FIRC to the bank receiving the proceeds to establish the fact the funds had been remitted in foreign currency.
Presently, an Indian company can issue equity shares against its liability in respect of External Commercial Borrowings (ECB), import of capital goods, lump sum fees/royalties, etc.
This circular clarifies that the rate of exchange prevailing on the date of the agreement between the parties concerned has to be applied at the time of conversion of foreign currency liability in respect of External Commercial Borrowings (ECB), import of capital goods, lump sum fees/royalties, etc. into Indian rupees, for the purpose of issue of equity shares/other securities, as the case may be, against the same. However, the Indian company is free to issue equity shares for a rupee amount less than that arrived at based on the rate of exchange prevailing on the date of the agreement by a mutual agreement with the lender/supplier.
Clarification- Establishment of Liaison Office/ Branch Office/Project Office in India by Foreign Entities- General Permission
Presently, no entity or person, being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran or China is permitted to establish in India, a branch office or a liaison office or a project office or any other place of business by whatever name called, without obtaining prior permission of RBI.
This circular clarifies that the said restrictions also apply to entities from Hong Kong and Macau. As a result, prior permission of RBI is required to be obtained by entities from Hong Kong and Macau to setup, in India, a Liaison/Branch/Project Offices or any other place of business by whatever name.
Presently, residents (other than exporters and importers) cannot cancel and rebook forward contracts, involving Rupee as one of the currencies, booked by them to hedge current and capital account transactions. Exporters are allowed to cancel and rebook forward contracts to the extent of 50% of the contracts booked in a financial year for hedging their contracted export exposures and importers are allowed to cancel and rebook forward contracts to the extent of 25% of the contracts booked in a financial year for hedging their contracted import exposures.
This circular now permits everyone with a contracted exposure to freely cancel and rebook forward contracts in respect of all current account transactions as well as capital account transactions with a residual maturity of one year or less. In the case of FII/QFI/other portfolio investors, forward contracts booked by them, once cancelled, can be rebooked up to the extent of 10% of the value of the contracts cancelled. However, forward contracts booked by them can be rolled over on or before maturity.
Section 6 (4) of FEMA, 1999 permits a person resident in India to hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India.
This circular clarifies that the following transactions are covered u/s. 6(4) of FEMA, 1999: –
(i) Foreign currency accounts opened and maintained by such a person when he was resident outside India.
(ii) Income earned through employment or business or vocation outside India taken up or commenced while such person was resident outside India, or from investments made while such person was resident outside India, or from gift or inheritance received while such a person was resident outside India.
(iii) Foreign exchange including any income arising therefrom, and conversion or replacement or accrual to the same, held outside India by a person resident in India acquired by way of inheritance from a person resident outside India.
(iv) Persons resident in India can freely utilise all their eligible assets abroad as well as income on such assets or sale proceeds thereof received after their return to India for making any payments or to make any fresh investments abroad without RBI approval if the cost of such investments and/or any subsequent payments are met exclusively out of funds forming part of eligible assets held by them and the transaction is not in contravention of the provisions of FEMA.
This circular has expanded the scope of the Rupee Drawing Arrangements (RDA) by including the following items under the list of Permitted Transactions: –
1. Payments to utility service providers in India, for services such as water supply, electricity supply, telephone (except for mobile top-ups), internet, television etc.
2. Tax payments in India.
3. EMI payments in India to Banks and Non- Banking Financial Companies (NBFCs) for repayment of loans.
The detailed list under Part (B) of Annex-I is annexed to the circular.
Presently, individuals resident in India can include Non-Resident Indian (NRI) close relative(s) as defined in Section 6 of the Companies Act, 1956 as a joint holder(s) in their resident savings bank accounts on “former or survivor” basis. However, such NRI close relatives cannot operate the said account during the life time of the resident account holder.
This circular provides that individuals resident in India can now include NRI close relative(s) as defined in Section 6 of the Companies Act, 1956 as a joint holder(s) in their new/existing resident savings bank accounts/other bank accounts on “either or survivor” basis. The NRI has to give a declaration in the prescribed format stating that he/she will not use the proceeds lying in the above account for any transaction in contravention of FEMA and in case of any violation he/she will be responsible for the same.
The above liberalisation is subject to the following: –
a) The said account will be treated as resident bank account for all purposes and all regulations applicable to a resident bank account will be applicable.
b) Cheques, instruments, remittances, cash, card or any other proceeds belonging to the NRI close relative cannot be credited to the said account.
c) The NRI close relative can operate the said account only for and on behalf of the resident for domestic payment and not for creating any beneficial interest for himself.
d) Where the NRI close relative becomes a joint holder with more than one resident in the said account, such NRI close relative must be the close relative of all the resident bank account holders.
e) Where due to any eventuality, the non-resident account holder becomes the survivor of the said account the same must be categorised as Non- Resident Ordinary Rupee (NRO) account and all such regulations as applicable to NRO account shall be applicable. Onus will be on the NRI account holder to inform the Bank to get the account categorised as NRO account.
This circular permits the issue of equity shares and compulsorily and mandatorily convertible preference shares/debentures under FDI Scheme to a person resident outside with an “optionality clause”. Under this clause, after a minimum lockin period of one year or a minimum lock-in period as prescribed under FDI Regulations, whichever is higher (e.g. defence and construction development sector where the lock-in period of three years has been prescribed), the non-resident investor exercising option/right of buy-back will be eligible to exit without any assured return at the price prevailing/ value determined at the time of exercise of the option. The lock-in period will be effective from the date of allotment of such shares or convertible debentures unless otherwise prescribed.
Valuation will be as under: –
(i) In case of a listed company, the market price prevailing at the recognised stock exchanges.
(ii) In case of unlisted company, price not exceeding that arrived at on the basis of Return on Equity (i.e. Profit After Tax/Net Worth – where Net Worth would include all free reserves and paid up capital) as per the latest audited balance sheet.
(iii) Compulsorily Convertible Debentures (CCD) and Compulsorily Convertible Preference Shares (CCPS) are to be transferred at a price worked out as per any internationally accepted pricing methodology at the time of exit and which is to be duly certified by a Chartered Accountant or a SEBI registered Merchant Banker.
All existing contracts will also have to comply with the above conditions to qualify as FDI compliant.
This circular provides that ‘Maintenance, Repairs and Overhaul’ (MRO) will also be treated as a part of airport infrastructure for the purposes of ECB. As a result, MRO will be considered as part of the sub-sector of Airport in the Transport Sector of Infrastructure.
This circular provides that, with immediate effect, approval under the Automatic Route will now be granted by the Bank of the borrower and not by RBI in the following cases where ECB has been availed of from FEH (direct holder as well as indirect holders) and group companies of FEH: –
1. ECB by companies belonging to manufacturing, infrastructure, hotels, hospitals and software sectors from indirect equity holders and group companies.
2. ECB by companies in miscellaneous services from direct/indirect equity holders and group companies. Miscellaneous services mean companies engaged in training activities (but not educational institutes), research and development activities and companies supporting infrastructure sector. Companies doing trading business, companies providing logistics services, financial services and consultancy services are, however, not covered under the facility.
3. ECB by companies belonging to manufacturing, infrastructure, hotels, hospitals and software sectors for general corporate purpose (which includes working capital financing) from direct equity holder.
4. Change of lender when the ECB is from FEH – direct/ indirect equity holder(s) and group companies.
Presently, subject to certain terms & conditions, Indian companies are permitted to refinance/repay the Rupee loans, raised by them from the domestic banking system, by raising ECB from recognised lenders, subject to conditions.
This circular prohibits with immediate effect eligible Indian companies to raise ECB from overseas branches/ subsidiaries of Indian banks for the purpose of refinance/ repayment of the Rupee loans raised from the domestic banking system in respect of the following:
a. Scheme of take-out financing.
b. Repayment of existing Rupee loans for companies in infrastructure sector.
c. Spectrum allocation.
d. Repayment of Rupee loans.
Presently, prior approval of RBI is required for any elongation/ rollover in the maturity period of an existing ECB.
This circular now permits banks to grant elongation/ rollover of the maturity period of an existing ECB (but not FCCB) availed under the Automatic Route or the Approval Route, subject to the following conditions: –
i. Changes, if any, in all-in-cost (AIC) must only be on account of change in average maturity period (AMP) as a result of re-scheduling of ECB and post rescheduling the AIC and the AMP must be in conformity with the applicable guidelines.
ii. T here must not be any increase in the rate of interest and no additional cost (in foreign currency/Indian Rupees) must be involved due to the re-scheduling.
iii. R e-scheduling is permitted, only once, before the maturity of the ECB.
iv. I f the lender is an overseas branch of a domestic bank, prudential norms applicable on account of rescheduling have to be complied with. v. Changes on account of re-scheduling must be reported to DSIM through revised Form 83.
vi. E CB should be in compliance with all applicable guidelines related to eligible borrower, recognised lender, AIC, AMP, end-uses, etc.
vii. The borrower must not be in the default / caution list of RBI and should not be under investigation of the Directorate of Enforcement.
This circular states that: –
(a) In cases where the NR investor including an NRI, who has acquired and continues to hold control in an Indian company in accordance with SEBI (Substantial Acquisition of shares and Takeover) Regulations, acquires shares on the stock exchanges under the FDI scheme through a registered broker it is the duty of the investee company to file form FC-TRS with the bank within 60 of the transaction.
(b) Henceforth, banks have to approach the concerned Regional Office of RBI (as against the present system of approaching the Central Office of RBI) to regularise the delay in submission of form FC-TRS, beyond the prescribed period of 60 days.
(c) IBD/FED or the nodal office of the bank has to continue to submit a consolidated monthly statement in respect of all the transactions reported by their branches together with copies of the FC-TRS forms received from their branches to FED, RBI, Foreign Investment Division, Central Office, Mumbai in a soft copy (in MS- Excel).
This circular provides that renewal/rollover of an existing/original guarantee, which is part of the total financial commitment of the Indian Party will not be not to treated/reckoned as a fresh financial commitment, if: –
(a) The existing/original guarantee was issued in terms of the then extant/prevailing FEMA guidelines.
(b) There is no change in the end use of the guarantee, i.e. the facilities availed by the JV/WOS/Step Down Subsidiary.
(c) There is no change in any of the terms & conditions, including the amount of the guarantee except the validity period. The rolled over guarantee has to be reported as fresh financial commitment in Part II of Form ODI. If the Indian party is under investigation by any investigation/enforcement agency or regulatory body, the concerned agency/body must be kept informed about the rollover.
If the above conditions are not met, the Indian party has to obtain, through the designated AD bank, prior approval of RBI for rollover/renewal of the existing guarantee.
Annexed to this circular is the new ECB-2 Return. Part E of ECB-2 Return has been modified to capture details of financial hedges contracted by corporates, their foreign currency exposure relating to ECB and their foreign currency earnings and expenditure.
This circular states that the sub-limit for investment in Commercial Paper by FII, QFI & other long-term investors is reduced from US $3.50 billion to US $2 billion with immediate effect. However, there is no change in the total Corporate debt limit which will continue to be US $51 billion.
The revised position, subject to operational guidelines to be issued by SEBI, is as under: –
This circular contains clarification with respect to import of Gold as well as Gold Dore as under: –
Import of Gold
1. In case of Advance Authorisation (AA)/Duty Free Import Authorisation (DFIA) issued before 14th August, 2013, the condition of sequencing imports prior to exports will not be insisted upon even in case of entities/units in the SEZ and EOU, Premier and Star Trading Houses.
2. The imports made as part of the AA/DFIA scheme will be outside the purview of the 20:80 Scheme and will be accounted for separately and will also not entitle the Nominated Agency/Banks/Entities to any further import.
3. The Nominated Banks/Agencies/Entities can make available gold to the exporters (other than AA/ DFIA holders) operating under the Replenishment Scheme.
4. Import of gold in the third lot onwards will be lesser of the two:
a. Five times the export for which proof has been submitted; or
b. Quantity of gold permitted to a Nominated Agency in the first or second lot.
A revised working example of the operations of the 20:80 Scheme is Annexed to this circular.
Gold Dore
1. Refiners are allowed to import Gold Dore of 15% of their license for each of the first two months.
2. Where import quantity has already been identified by DGFT for first two lots, import of such quantity must be in compliance with the guidelines issued vide A.P. (DIR Series) Circular No. 82 dated 31st December, 2013.
3. DGFT can include new refiners, and fix license quantity for them.
This circular states that RB has developed a new comprehensive IT-based system called EDPMS which will facilitate the banks to report various returns like XOS (export outstanding statements), ENC (Export Bills Negotiated/sent for collection) for acknowledgement of receipt of Export documents, Sch. 3 to 6 (realisation of export proceeds), EBW (write-off of export bills), ETX (extension of realisation of export bills) relating to Export transaction through a single platform.
The date of inception of the system along with user credentials and web link for accessing the system will be communicated to the banks through email. However, banks are required to submit a fill-in form (as per format annexed to the circular) through email on or before 10th February, 2014 to obtain user name and password.
Annexed to this circular is the new Form FC-GPR. The change in Form FC-GPR has been made to capture details of FDI as regards Brownfield/Greenfield investments and the date of incorporation of the investee company in Clause No. 1 of the said Form
This circular has, with respect to third party payments for export/import transactions, made the following changes:
1. Removed the conditions that a “firm irrevocable order backed by a tripartite agreement should be in place”. This is subject to the following: –
a. Bank has to be satisfied with the bonafides of the transaction and export documents, such as, invoice/FIRC.
b. Bank has to consider the FATF statements while handling such transaction.
2. The limit of US $100,000 eligible for third party payment for import of goods stands withdrawn. As a result third party payments for imports can be made without any limit.
Presently, FII, QFI and other long term investors registered with SEBI, viz. Sovereign Wealth Funds (SWF), Multilateral Agencies, Pension/Insurance/ Endowment Funds and Foreign Central Banks, are permitted to invest up to US $30 billion, on repatriation basis, in Government dated securities. Out of the above limit of US $30 billion, a sub-limit of US $5 billion has been marked out for investment by other long term investors registered with SEBI.
This Circular has increased the said sub-limit of US $5 to US $10. As a result, other long term investors registered with SEBI, viz. Sovereign Wealth Funds (SWF), Multilateral Agencies, Pension/Insurance/ Endowment Funds and Foreign Central Banks, can now invest up to US $10 billion in Government dated securities within the overall limit of $30.
This Circular has increased the FII investment limit in listed non-convertible debentures/bonds, with a residual maturity of five years and above, and issued by Indian companies in the infrastructure sector, where ‘infrastructure’ is defined in terms of the extant ECB guidelines, by an additional limit of US $ 20 billion i.e., from the existing limit of US $ 5 billion to US $ 25 billion. As a result, the total limit available to FII for investment in listed non-convertible debentures/bonds would be US $ 40 billion with a sub-limit of US $ 25 billion for investment in listed non-convertible debentures/ bonds issued by corporates in the infrastructure sector. This investment by FII in listed non-convertible debentures/bonds would have a minimum lock-in period of three years. However, FIIs are allowed to trade amongst themselves during the lock-in period.
Further, it has also been decided to allow SEBI registered FII to invest in unlisted non-convertible debentures/bonds issued by corporates in the infrastructure sector, subject to the terms and conditions mentioned above.
This Circular permits Custodian Banks, subject to RBI regulations and instructions on banks’ exposure to capital markets, to issue Irrevocable Payment Commitments (IPC) in favour of Stock Exchanges/ Clearing Corporations of Stock Exchanges on behalf of their FII clients for purchase of shares under the Portfolio Investment Scheme.
This Circular advices persons resident outside India who have established LO/BO in India and have not obtained permission from RBI to do so within a period of 90 days from the date of issue of this Circular for regularisation of establishment of such offices in India, in terms of the extant FEMA provisions.
Similarly, foreign entities who may have established LO or BO with the permission from the Government of India must also approach RBI along with a copy of the said approval for allotment of a Unique Identification Number (UIN).
These applications/requests must be submitted to the Chief General Manager-in-Charge, Reserve Bank of India, Foreign Exchange Department, Foreign Investment Division, Central Office, Fort, Mumbai-400001 in form FNC and should be routed through the bank where the account of such LO/ BO is maintained.
(i) Fresh ECB/FCCB must be raised with the stipulated average maturity period and applicable all-in-cost being as per the extant ECB guidelines.
(ii) Amount of fresh ECB/FCCB must not exceed the outstanding redemption value at maturity of the outstanding FCCB.
(iii) Fresh ECB/FCCB must not be raised six months before the maturity date of the outstanding FCCB.
(iv) Purpose of ECB/FCCB must be clearly mentioned as ‘Redemption of outstanding FCCBs’ in Form 83 at the time of obtaining Loan Registration Number from the Reserve Bank.
(v) Designated bank is required to monitor the end use of funds.
(vi) Must comply with all other requirements of ECB policy under the Automatic Route, such as eligible borrower, recognised lender, enduse, prepayment, refinancing of existing ECB and reporting arrangements.
ECB/FCCB beyond US $ 500 million for the purpose of redemption of the existing FCCB will be considered under the approval route. ECB/FCCB availed of for the purpose of refinancing the existing outstanding FCCB will be reckoned as part of the limit of US $ 500 million available under the Automatic Route as per the extant norms.
Restructuring of FCCB involving change in the existing conversion price is not permissible. Proposals for restructuring of FCCB not involving change in conversion price will be considered under the Approval Route depending on the merits of the proposal.
This Circular has:
1. Extended the date for completion of buyback/ prepayment to 31st March, 2012.
2. Liberalised the procedure for buyback/prepayment of FCCB as under:
A. Automatic Route
Indian companies can prematurely buyback FCCB, subject to compliance with the following:
(i) Buyback value of the FCCB must be at a minimum discount of 8% on book value.
(ii) Funds used for the buyback must be out of existing foreign currency funds held either in India (including funds held in the EEFC account) or abroad and/or out of fresh ECB raised in conformity with the current ECB norms.
(iii) Where fresh ECB is raised, it must co-terminus with the outstanding maturity of the original FCCB. If it is raised for less than three years the all-in-cost ceiling should not exceed 6 months Libor plus 200 bps as applicable to short-term borrowings. If it is raised for more than three years, the all-in-cost for the relevant maturity of the ECB will apply.
B. Approval Route
Indian companies can buyback FCCB up to redemption value of US $ 100 million out of their internal accruals, subject to compliance with the following:
(i) Minimum discount of 10% of book value for redemption value up to US $ 50 million.
(ii) Minimum discount of 15% of book value for the redemption value over US $ 50 million and up to US $ 75 million.
(iii) Minimum discount of 20% of book value for the redemption value of over US $ 75 million and up to US $ 100 million.
This Circular permits these foreign nationals, subject to certain terms and conditions, to redesignate their resident accounts with banks in India as NRO account on leaving the country. Only bona fide dues of the account holder, when he/ she was resident in India, can be deposited in the NRO account. Debits to the account should only be for the purpose of repatriation of funds to the overseas account of the account holder under the US $ 1 million per financial year scheme and after payment of appropriate taxes.
(1) Performance Guarantees issued by the Indian Party:
Presently, ‘financial commitment’ of the Indian Party includes contribution to the capital of the overseas Joint Venture (JV)/Wholly-Owned Subsidiary (WOS), loan granted to the JV/WOS and 100% of guarantees issued to or on behalf of the JV/WOS.
This Circular provides that only 50% of the amount of performance guarantee will be reckoned for the purpose of computing financial commitment to its JV/WOS overseas, within the 400% of the net worth of the Indian Party as on the date of the last audited balance sheet. Further, the time specified for the completion of the contract may be considered as the validity period of the related performance guarantee.
In cases where invocation of the performance guarantee breaches the ceiling for the financial exposure of 400% of the net worth of the Indian Party, the Indian Party will have to obtain prior approval of RBI before remitting funds from India, on account of such invocation.
(2) Restructuring of the balance sheet of the overseas entity involving write-off of capital and receivables:
Presently, there is no provision for restructuring of the balance sheet of the overseas JV/WOS not involving winding up of the entity or divestment of the stake by the Indian Party.
This Circular provides that Indian promoters who have set up WOS abroad or have at least 51% stake in an overseas JV, can write off capital (equity/preference shares) or other receivables, such as, loans, royalty, technical know-how fees and management fees in respect of the JV/WOS, even while such JV/WOS continue to function as under:
(i) Listed Indian companies are permitted to write off capital and other receivables up to 25% of the equity investment in the JV/WOS under the Automatic Route; and
(ii) Unlisted companies are permitted to write off capital and other receivables up to 25% of the equity investment in the JV/WOS under the Approval Route.
The write-off/restructuring have to be reported to the Reserve Bank through the designated AD bank within 30 days of write-off/restructuring. The Indian Party must submit the following documents along with the applications for write-off/restructuring to the bank under the automatic as well as the approval routes:
(a) A certified copy of the balance sheet showing the loss in the overseas WOS/JV set up by the Indian Party; and
(b) Projections for the next five years indicating benefit accruing to the Indian company consequent to such write off/restructuring.
(3) Disinvestment by the Indian Parties of their stake in an overseas JV/WOS involving write-off:
Presently, all disinvestments involving ‘write-off’, i.e., where the amount repatriated on disinvestment is less than the amount of original investment, need prior approval of RBI. However, in the following cases disinvestment is permitted under the automatic route, subject to the following conditions:
(i) In cases where the JV/WOS is listed in the overseas stock exchange;
(ii) In cases where the Indian promoter company is listed on a stock exchange in India and has a net worth of not less than Rs.100 crore; and
(iii) Where the Indian promoter company is an unlisted company and the investment in the overseas venture does not exceed US $ 10 million.
This Circular: (i) Has expanded the list of corporates eligible for disinvestment under the automatic route. As a result, listed Indian promoter companies with net worth of less than Rs.100 crore and investment in an overseas JV/WOS not exceeding US $ 10 million, can now go for disinvestment under the automatic route. They are however, required to report the disinvestment to RBI through their designated bank within 30 days from the date of disinvestment.
(ii) Clarifies that disinvestment, in case of eligible corporates, under the automatic route will also include cases where the amount repatriated after disinvestment is less than the original amount invested.
(4) Issue of guarantee by an Indian Party to step down subsidiary of JV/WOS under general permission:
Presently, Indian Parties are permitted to issue corporate guarantees only on behalf of their first level step-down operating JV/WOS set up by their JV/WOS operating as a Special Purpose Vehicle (SPV) under the automatic route, subject to the condition that the financial commitment of the Indian Party is within the extant limit for overseas direct investment.
This Circular provides that:
(i) Indian Party may extend corporate guarantee on behalf of the first generation step-down operating company under the automatic route, within the prevailing limit for overseas direct investment, irrespective of whether the direct subsidiary is an operating company or an SPV.
(ii) Indian Party may issue corporate guarantee on behalf of second generation or subsequent level step-down operating subsidiaries under the approval route, provided the Indian Party directly or indirectly holds 51% or more stake in the overseas subsidiary for which such guarantee is intended to be issued.
This Circular permits FII to, in addition to the above, hedge risk related to transient capital flows in respect of their applications to Initial Public Offers (IPO) under the Application Supported by Blocked Amount (ASBA) mechanism, subject to the following:
(i) FII can undertake foreign currency — rupee swaps only for hedging the flows relating to the IPO under the ASBA mechanism.
(ii) Amount of the swap should not exceed the amount proposed to be invested in the IPO.
(iii) Tenor of the swap should not exceed 30 days.
(iv) Contracts, once cancelled, cannot be rebooked. (v) No rollovers will be permitted under this scheme.
This Circular has increased this limit from 2% to 10% with immediate effect. As a result, FII can now cancel and rebook up to 10% of the market value of the portfolio as at the beginning of the financial year.
Presently, listed companies or unlisted companies with a minimum net worth of Rs.100 crore, subject to certain conditions, are eligible to use OTC structures/strategies.
As per the new criteria, listed companies and their subsidiaries/JV/associates having common treasury and consolidated balance sheet or unlisted companies with a minimum net worth of Rs.200 crore, subject to certain conditions, are eligible to use OTC structures/strategies.
This Circular permits, banks to open and maintain, without prior approval of the Reserve Bank, non-interest bearing Escrow accounts in Indian Rupees in India on behalf of residents and/or non-residents, towards payment of share purchase consideration and/or provide Escrow facilities for keeping securities to facilitate FDI transactions. Similarly, permission has been granted to SEBI authorised Depository Participants, to open and maintain, without prior approval of the Reserve Bank, Escrow accounts for securities.
These facilities will be applicable for both issue of fresh shares to the non- residents as well as transfer of shares from/to the non-residents and is subject to the terms and conditions given in the Annex to this Circular.
This Circular has given powers to banks to permit pledge of shares of an Indian company held by non-resident investor(s) in accordance with the FDI policy in the following cases, subject to compliance with the conditions indicated below:
(i) Shares of an Indian company held by the non-resident investor can be pledged in favour of an Indian bank in India to secure the credit facilities being extended to the resident investee company for bona fide business purposes subject to the following conditions:
(a) In case of invocation of pledge, transfer of shares should be in accordance with the FDI policy in vogue at the time of creation of pledge;
(b) Submission of a declaration/annual certificate from the statutory auditor of the investee company that the loan proceeds will be/have been utilised for the declared purpose;
(c) The Indian company has to follow the relevant SEBI disclosure norms; and
(d) Pledge of shares in favour of the lender (bank) would be subject to compliance with the section 19 of the Banking Regulation Act, 1949.
(ii) Shares of the Indian company held by the non-resident investor can be pledged in favour of an overseas bank to secure the credit facilities being extended to the non-resident investor/nonresident promoter of the Indian company or its overseas group company, subject to the following conditions:
(a) Loan is availed of only from an overseas bank;
(b) Loan is utilised for genuine business purposes overseas and not for any investments either directly or indirectly in India;
(c) Overseas investment should not result in any capital inflow into India;
(d) In case of invocation of pledge, transfer should be in accordance with the FDI policy in vogue at the time of creation of pledge; and
(e) Submission of a declaration/annual certificate from a Chartered Accountant/Certified Public Accountant of the non-resident borrower that the loan proceeds will be/have been utilised for the declared purpose.
This Circular has increased this limit of US $ 100,000 to US $ 200,000 or its equivalent, with immediate effect for importers. However, in the case of a Public Sector Company or a Department/ Undertaking of Central/State Governments special permission from the Ministry of Finance, Government of India, for advance remittances exceeding US $ 100,000 or its equivalent where the requirement of bank guarantee is to be specifically waived.
The Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, Government of India has issued Circular No. 2 containing the Consolidated FDI Policy. The Policy has come into effect from October 31, 2011 and subsumes and supersedes all Press Notes/Press Releases/ Clarifications/Circulars issued by DIPP, which were in force as on September 30, 2011.
Application in Form 83 for allotment of loan registration number (LRN) must be made within 7 days from the date of signing the loan agreement. In case the borrower fails to obtain LRN within the above period, the approval granted by RBI will stand cancelled.
(i) For ECB up to US $ 5 million — minimum paidup equity of 25% held directly by the lender.
(ii) For ECB more than US $ 5 million — minimum paid-up equity of 25% held directly by the lender and debt-equity ratio not exceeding 4:1 (i.e., the proposed ECB does not exceeds four times the direct foreign equity holding).
This Circular clarifies that:
(i) Now onwards the term ‘debt’ in the debtequity ratio will be replaced with ‘ECB liability’ and the ratio will be known as ‘ECB liability’ — equity ratio to make the term signify true position as other borrowings/debt are not to be considered in working out this ratio.
(ii) Presently, only the paid-up capital contributed by the foreign equity holder is taken into account for the purpose of calculation of equity for ECB of or beyond USD 5 million from direct foreign equity holders. Henceforth, besides the paid-up capital, free reserves (including the share premium received in foreign currency) as per the latest audited balance sheet will be considered for the purpose of calculating the equity of the foreign equity holder. However, where there are more than one foreign equity holders in the borrowing company, the portion of the share premium in foreign currency brought in by the lender(s) concerned will only be considered for calculating the ECB liability-equity ratio for reckoning quantum of permissible ECB.
(iii) For calculating the ECB liability, not only the proposed borrowing but also the outstanding ECB from the same foreign equity holder lender should be considered.
Henceforth, ECB proposals from foreign equity holders (direct/indirect) and group companies will be considered under the Approval Route as under:
(i) Service sector units, in addition to those in hotels, hospitals and software, will also be considered as eligible borrowers if the loan is obtained from foreign equity holders. This would facilitate borrowing by training institutions, R & D, miscellaneous service companies, etc.
(ii) ECB from indirect equity holders may be considered, provided the indirect equity holding by the lender in the Indian company is at least 51%.
(iii) ECB from a group company may be permitted, provided both the borrower and the foreign lender are subsidiaries of the same parent.
However, it must be ensured that total outstanding stock of ECB (including the proposed ECB) from a foreign equity lender does not exceed 7 times the equity holding, either directly or indirectly of the lender (in case of lending by a group company, equity holdings by the common parent will be reckoned).
This Circular permits direct foreign equity holder(s) holding a minimum of 25%t of the paid-up capital and indirect foreign equity holder, holding at least 51% of the paid-up capital, to provide credit enhancement to Indian companies engaged exclusively in the development of infrastructure and to IFC. As a result, credit enhancement by all eligible non-resident entities will henceforth be permitted under the automatic route and no prior approval will be required from RBI.
(i) Enhancement of ECB limit under the automatic route
(a) Eligible borrowers in real sector, industrial sector, infrastructure sector can now avail of ECB up to US $ 750 million or equivalent per financial year under the automatic route as against the present limit of US $ 500 million or equivalent per financial year.
(b) Corporates in specified service sectors viz. hotel, hospital and software, can avail of ECB up to US $ 200 million or equivalent during a financial year as against the present limit of US $ 100 million or equivalent per financial year, subject to the condition that the proceeds of the ECBs should not be used for acquisition of land.
(ii) ECBs designated in INR
(a) ‘All eligible borrowers’ can now avail of ECB designated in INR from foreign equity holders under the automatic/approval route, as the case may be, as per existing ECB guidelines.
(b) NGO engaged in micro-finance activities can continue to avail of ECB designated in INR, as hitherto, under the automatic route from overseas organisations and individuals as per existing guidelines.
(iii) ECB for Interest During Construction (IDC)
Interest During Construction (IDC) will be considered as a permissible end-use for Indian companies which are in the infrastructure sector, under the automatic/approval route, as the case may be, subject to the following conditions: (a) That the IDC is capitalised; and (b) Is part of the project cost.
(i) The bridge finance must be replaced with a long-term ECB;
(ii) The long-term ECB must comply with all the extant ECB norms; and
(iii) Prior approval must be obtained from RBI for replacing the bridge finance with a long-term ECB.
Presently, Foreign Direct Investment (FDI), up to 100%, under the automatic route, is permitted in the pharmaceuticals sector. This Circular has made the following changes, with immediate effect, to the said policy:
(i) FDI, up to 100%, under the automatic route, will continue to be permitted for greenfield investments in the pharmaceuticals sector.
(ii) FDI, up to 100%, will be permitted for brownfield investments (i.e., investments in existing companies), in the pharmaceuticals sector, under the Government approval route. As a result, ‘Circular 2 of 2011 — Consolidated FDI Policy’, dated 30-9-2011, issued by the Department of Industrial Policy & Promotion stands amended with the insertion of the following new Para
6.2.25:
6.2.25 Pharmaceuticals
6.2.25.1 Greenfield 100% Automatic
6.2.25.2 Existing companies 100% Government
(a) The import is as per the Foreign Trade Policy in force.
(b) Invoices/Bills of Lading/Airway Bills and Exchange Control copies of Bills of Entry for home consumption have been submitted by the importer to the bank.
(c) Payment for the import is still outstanding in the books of the importer.
(d) The relative GR forms will be released by the AD bank only after the entire export proceeds are adjusted/received.
(e) The ‘set-off’ of export receivables against import payments must be in respect of the same overseas buyer and supplier and that consent for ‘set-off’ must have been obtained from him. (f) Export/import transactions with ACU countries are not covered by this arrangement.
(g) All relevant documents are submitted to the concerned bank which will have to comply with all the regulatory requirements relating to the transactions.
This Circular provides that issue/transfer of ‘participating interest/rights’ in oil fields to a non-resident will be treated as a Foreign Direct Investment (FDI) transaction under the FDI policy and FEMA regulations. Hence, transfer of ‘participating interest/rights’ will be reported as ‘other’ category under Para 7 of revised Form FC-TRS (the same is Annexed to this Circular) and issuance of ‘participating interest/rights’ will be reported as ‘other’ category of instruments under Para 4 of Form FC-GPR.
Maturity period All-in-cost over 6 month LIBOR*
Existing Revised
Up to one year 200 bps 350 bps
More than one year and up to three years
* For the respective currency of credit or applicable benchmark
The all-in-cost ceilings include arranger fee, upfront fee, management fee, handling/processing charges, out-of-pocket and legal expenses, if any. This increased all-in-cost ceiling is applicable up to March 31, 2012.
1. Financial Action Task Force (FATF) has issued a Statement on June 24, 2011 calling its members and other jurisdictions to apply counter-measures to protect the international financial system from the ongoing and substantial money laundering and terrorist financing (ML/FT) risks emanating from Iran and Democratic People’s Republic Korea (DPRK). However, Authorised Persons (Indian Agents) are not precluded from entering into legitimate trade and business transactions with Iran.
2. FATF has also identified the following countries — Bolivia, Cuba, Ethiopia, Kenya, Myanmar, Sri Lanka, Syria and Turkey — as Jurisdictions with strategic AML/CFT deficiencies that have not made sufficient progress in addressing the deficiencies or have not committed to an action plan developed with the FATF to address the deficiencies and calls on its members to consider the risks arising from the deficiencies associated with each jurisdiction. Authorised Persons (Indian Agents) are advised to take into account risks arising from the deficiencies in AML/CFT regime of these countries, while entering into business relationships and transactions with persons (including legal persons and other financial institutions) from or in these countries/jurisdictions.
1. Financial Action Task Force (FATF) has issued a Statement on June 24, 2011 calling its members and other jurisdictions to apply counter-measures to protect the international financial system from the ongoing and substantial money laundering and terrorist financing (ML/FT) risks emanating from Iran and Democratic People’s Republic Korea (DPRK). However, Authorised Persons are not precluded from entering into legitimate trade and business transactions with Iran.
2. FATF has also identified the following countries — Bolivia, Cuba, Ethiopia, Kenya, Myanmar, Sri Lanka, Syria and Turkey — as jurisdictions with strategic AML/CFT deficiencies that have not made sufficient progress in addressing the deficiencies or have not committed to an action plan developed with the FATF to address the deficiencies and calls on its members to consider the risks arising from the deficiencies associated with each jurisdiction. Authorised Persons are advised to take into account risks arising from the deficiencies in AML/CFT regime of these countries, while entering into business relationships and transactions with persons (including legal persons and other financial institutions) from or in these countries/jurisdictions.
A QFI can purchase, on repatriation basis:
(1) Up to INR620 billion in Rupee-denominated units of equity schemes of SEBI-registered domestic Mutual Funds.
(2) Up to INR186 billion in units of debt schemes which invest in infrastructure (‘Infrastructure’ as defined under the extant ECB guidelines) debt of minimum residual maturity of five years, within the existing ceiling of 25 billion for FII investment in corporate bonds issued by infrastructure companies.
They can invest under two routes:
(i) Direct Route — SEBI-registered Depository Participant (DP) route.
(ii) Indirect Route — Unit Confirmation Receipt (UCR) route.
Similarly, foreign entities who may have established LO or BO with the permission from the Government of India, must also approach RBI along with a copy of the said approval for allotment of a Unique Identification Number (UIN).
These applications/requests must be submitted to the Chief General Manager-in-Charge, Reserve Bank of India, Foreign Exchange Department, Foreign Investment Division, Central Office, Fort, Mumbai-400001 in form FNC and should be routed through the bank where the account of such LO/ BO is maintained. A.P. (DIR Series) Circular No. 3, dated 21-7- 2011 —Facilitating Rupee Trade — Hedging facilities for non-resident entities.
This Circular permits non-resident importers and exporters to hedge their currency risk in respect of exports from India and import to India, respectively, where invoices are raised in Indian Rupees. The operational guidelines, terms and conditions, etc. are annexed to this Circular.
This Circular permits, under the Approval Route, Indian companies in the infrastructure sector, to utilise 25% of the fresh ECB raised by them towards refinancing of the Rupee loan(s) availed by them from the domestic banking system, subject to the following conditions:
(i) At least 75% of the fresh ECB proposed to be raised must be utilised for capital expenditure towards a ‘new infrastructure’ project(s), where ‘infrastructure’ is as defined in terms of the extant guidelines on ECB.
(ii) In respect of remaining 25%, the refinance shall only be utilised for repayment of the Rupee loan availed of for ‘capital expenditure’ of earlier completed infrastructure project(s); and
(iii) The refinance shall be utilised only for the Rupee loans which are outstanding in the books of the financing bank concerned.
Companies desirous of availing such ECBs may submit their applications in Form ECB through their designated Authorised Dealer bank with the following documents:
(i) Details of the project(s) completed duly certified by the designated AD Category I bank;
(ii) Certificate from the Statutory Auditor as well as from the domestic lender bank(s) regarding the utilisation of Rupee term loans with respect to ‘capital expenditure’ for the completed infrastructure project(s);
(iii) Certificate from the designated Authorised Dealer bank mentioning the outstanding Rupee loans; and
(iv) Details of the proposed end-use of the new infrastructure project.
This Circular, in addition to the above, permits issue of equity shares/preference shares to persons resident outside India for consideration other than cash under the Approval Route in the following cases:
1. Import of capital goods/machineries/equipments (including second-hand machineries), subject to compliance with all the following conditions:
(a) The import of capital goods, machineries, etc., made by a resident in India, is in accordance with the Export/Import Policy issued by the Government of India.
(b) There is an independent valuation of the capital goods/machineries/equipments (including second-hand machineries) by a third party entity, preferably by an independent valuer from the country of import along with production of copies of documents/certificates issued by the customs authorities towards assessment of the fair value of such imports.
(c) The application should clearly indicate the beneficial ownership and identity of the importer company as well as the overseas entity.
(d) All such conversions of import payables for capital goods into FDI should be completed within 180 days from the date of shipment of goods.
2. Pre-operative/pre-incorporation expenses (including payments of rent, etc.), subject to compliance with all the following conditions:
(a) Submission of FIRC for remittance of funds by the overseas promoters for the expenditure incurred.
(b) Verification and certification of the preincorporation/ pre-operative expenses by the statutory auditor.
(c) Payments should be made directly by the foreign investor to the company. Payments made through third parties citing the absence of a bank account or similar such reasons will not be eligible for issuance of shares towards FDI.
(d) The capitalisation should be completed within the stipulated period of 180 days permitted for retention of advance against equity under the extant FDI policy.
(1) Transfer by way of sale of shares of a JV/ WOS not involving write-off of the investment.
(2) Transfer by way of sale of shares of a JV/ WOS involving write-off of the investment.
If the transaction does not fulfil the conditions mentioned under the Automatic Route, prior permission of RBI will need to be obtained before undertaking the same.
Indian Party is required to submit the details of divestment within 30 days from the date of divestment to RBI through its bank.
Annexed to this Circular is a new applicationcum- declaration form for purchase of foreign exchange under the Liberalised Remittance Scheme (popularly known as the INR12,360,898 Scheme). This new form has become necessitated due to certain additional items being covered under the said Scheme.
(i) The transfer does not conform to the pricing guidelines as stipulated by the Reserve Bank from time to time; or
(ii) The transfer of shares requires the prior approval of the FIPB as per the extant Foreign Direct Investment (FDI) policy; or
(iii) The Indian company whose shares are being transferred is engaged in rendering any financial service; or
(iv) The transfer falls under the purview of the provisions of SEBI (SAST) Regulations. Similarly, transfer of shares from a Non-Resident to a Resident which does not conform to the pricing guidelines as stipulated by the RBI also requires prior approval of RBI.
This Circular provides that prior approval of RBI will not be required in the following cases:
A. Transfer of shares from a Non-Resident to Resident under the FDI scheme where the pricing guidelines under FEMA, 1999 are not met, provided that:
(i) The original and resultant investment are in line with the extant FDI policy and FEMA regulations in terms of sectoral caps, conditions (such as minimum capitalisation, etc.), reporting requirements, documentation, etc.
(ii) The pricing for the transaction is compliant with the specific/explicit, extant and relevant SEBI regulations/guidelines (such as IPO, Book building, block deals, delisting, exit, open offer/substantial acquisition/ SEBI SAST, buyback).
(iii) Chartered Accountants’ Certificate to the effect that compliance with the relevant SEBI regulations/guidelines as indicated above is attached to the form FC-TRS to be filed with the AD bank. B.
Transfer of shares from Resident to Non- Resident:
(i) Where the transfer of shares requires the prior approval of the FIPB — provided that:
(a) The requisite approval of the FIPB has been obtained; and
(b) The transfer of share adheres with the pricing guidelines and documentation requirements as specified by the RBI from time to time.
(ii) Where SEBI (SAST) guidelines are attracted — subject to the adherence with the pricing guidelines and documentation requirements as specified by RBI from time to time.
(iii) Where the pricing guidelines under the Foreign Exchange Management Act (FEMA), 1999 are not met provided that:
(a) The resultant FDI is in compliance with the extant FDI policy and FEMA regulations in terms of sectoral caps, conditions (such as minimum capitalisation, etc.), reporting requirements, documentation, etc.
(b) The pricing for the transaction is compliant with the specific/explicit, extant and relevant SEBI regulations/guidelines (such as IPO, book building, block deals, delisting, exit, open offer/ substantial acquisition/SEBI SAST).
(c) Chartered Accountants’ Certificate to the effect that compliance with the relevant SEBI regulations/guidelines as indicated above is attached to the form FC-TRS to be filed with the AD bank.
(iv) Where the investee company is in the financial sector provided that:
(a) NOC are obtained from the respective financial sector regulators/regulators of the investee company as well as transferor and transferee entities and such NOC are filed along with the form FC-TRS with the AD bank.
(b) The FDI policy and FEMA regulations in terms of sectoral caps, conditions (such as minimum capitalisation, etc.), reporting requirements, documentation etc., are complied with.
This Circular has relaxed the requirements as under:
FII:
(i) FII would, in addition to investment in infrastructure companies, also be allowed to invest in non-convertible debentures/bonds issued by Non-Banking Financial Companies categorised as ‘Infrastructure Finance Companies’ (IFC) by the Reserve Bank of India within the overall limit of INR1,545 billion.
(ii) The lock-in-period of three years for FII investment stands reduced to one year up to an amount of INR309 billion within the overall limit of INR1,545 billion. This lock-in-period shall be computed from the time of first purchase by FII.
(iii) The residual maturity of five years would now onwards refer to the original maturity of the instrument at the time of first purchase by an FII.
QFI:
(i) QFI would, in addition to investment in Mutual Fund debt schemes, also be allowed to invest in non-convertible debentures/bonds issued by Non-Banking Financial Companies categorised as ‘Infrastructure Finance Companies’ (IFC) by the Reserve Bank of India within the overall limit of INR185 billion.
(ii) The residual maturity of five years would now onwards refer to the original maturity of the instrument at the time of first purchase by a QFI.
This Circular has done away with the criteria of 1:1 ratio between metro and non-metro branches.
This Circular has extended the relaxation for a further period of one year i.e., up to September 30, 2012. Hence, export proceeds representing the full export value of goods or software exported, can be realised and repatriated to India within twelve months from the date of exports made up to September 30, 2012.
This Circular clarifies that:
(a) In terms of s.s 4 of section (6) of FEMA, 1999, a person resident in India is free to hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was:
(i) Acquired, held or owned by such person when he was resident outside India or
(ii) Inherited from a person who was resident outside India.
(b) An investor can retain and reinvest overseas the income earned on investments made under the Liberalised Remittance Scheme.
This Circular states that FCNR(B) accounts can now be opened in any freely convertible currency.
This Circular has increased this limit per transaction from INR30,902 to INR185,413 with immediate effect.
This circular has modified certain KYC requirements as under: –
Presently, all single branch authorised money changers (AMC) having a turnover of more than $ 100,000 or equivalent per month and all multiple branch AMC are required to institute a system of monthly audit.
This circular has modified the above procedure in respect of multiple branch AMC. As a result, multiple branch AMC are required to put in place a system of Concurrent Audit, which will cover 80 % of the transactions value-wise under a system of monthly audit and rest 20 % of the transactions value-wise under quarterly audit.
Presently, authorised persons (AP), who are Indian Agents under the Money Transfer Service Scheme (MTSS), are required to submit a list of their subagents to the Foreign Exchange Department (FED), Central Office (CO) of RBI on a half yearly basis.
This circular provides that, since the list of subagents is already placed on RBI website (www.rbi. org.in), AP are no longer required to submit a list of their sub-agents to BI on a half-yearly basis. AP are now required to inform immediately any change/ addition/deletion to the list of their sub-agents to the Regional Offices of FED of RBI. AP are further required to verify the correctness of the list from the RBI website and intimate the same to RBI either through a letter or by e-mail within 15 days of the end of each quarter.
This circular states that SIDBI has been added as an eligible borrower for availing of ECB upto $ 500 million per financial year for on-lending, for permissible end uses, to the Micro, Small and Medium Enterprises (MSME) sector, subject to the following conditions: –
(a) On-lending must be done directly to the borrowers, either in INR or in foreign currency (FCY): –
(i) Foreign currency risk must be hedged by SIDBI in full in case of on-lending to MSME sector in INR; and
(ii) on-lending in foreign currency can only be to those beneficiaries who have a natural hedge by way of foreign exchange earnings.
(b) ECB, including the outstanding ECB, upto 50% of owned funds, can be availed under the automatic route and ECB beyond 50% of owned funds, can be availed under the approval route.
Presently, the simplified & revised procedure for submitting Softex Form is applicable/available only to units in Software Technology Parks of India (STPI) at Bengaluru, Hyderabad, Chennai, Pune and Mumbai.
This circular states that the said simplified and revised procedure for submitting Softex Form is now applicable/available to units in all STPI in India.
The circular further provides that a software exporter, whose annual turnover is at least Rs.1000 crore or who files at least 600 SOFTEX forms annually on all India basis, can now submit a statement in excel format as detailed in A. P. (DIR Series) Circular No. 80 dated 15th February, 2012.
Presently, units in the DTA can make
payment in foreign currency to units in SEZ against supply of goods by
the unit in SEZ to the unit in DTA.
This circular permits units in the DTA to make payment in foreign currency to units in SEZ against supply of services by the unit in SEZ to the unit in DTA. However, care should be taken to ensure that the Letter of Approval issued to the SEZ unit by the Development Commissioner of the SEZ contains a provision permitting the SEZ unit to supply goods /services to units in DTA and consequent receipt of payment from units in DTA in foreign currency.
Presently, FII are permitted to hedge the currency risk on the market value of their entire investment in equity and / or debt in India, as on a particular date, only with designated bank branches.
This circular permits FII to hedge the currency risk on the market value of their entire investment in equity and / or debt in India, as on a particular date, with any bank, subject to certain conditions. However, when the FII undertakes hedge with a non-designated bank branch, the same has to be settled through the Special Non-Resident Rupee A/c maintained with the designated bank through RTGS / NEFT.
