RBI Circulars, September 04, 2013 on Overseas Direct Investments (‘ODIs’) and External Commercial Borrowing (‘ECB’)

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RBI Circulars, September 04, 2013 on Overseas Direct Investments (‘ODIs’) and External Commercial Borrowing (‘ECB’)

RBI Circulars on Overseas Direct Investments (ODIs) and External Commercial Borrowing (ECB)

September 04, 2013

The Reserve Bank of India on September 04, 2013 issued clarifications on the Liberalized Remittance Scheme and issued Circulars regarding Overseas Direct Investments (ODIs) and External Commercial Borrowings (ECB) from foreign equity holders.

Reference Links:

LRS Clarifications: https://rbidocs.rbi.org.in/rdocs/notification/PDFs/APDIR32CR04092013.pdf
ODI Circular: https://rbidocs.rbi.org.in/rdocs/notification/PDFs/APDIR04092013CI.pdf
ECB Circular: https://rbidocs.rbi.org.in/rdocs/notification/PDFs/APDIR31_04092013.pdf

The highlights of the ODI Circular and ECB Circular are summarized below:

A.P. (DIR Series) Circular No. 30

September 04, 2013

Overseas Direct Investments – Rationalization/Clarifications

It is clarified that all financial commitments made on or before August 14, 2013, in compliance with the earlier limit of 400% of the net worth of the Indian Party under the automatic route, will continue to be allowed.

Financial commitments made before August 14, 2013 remain valid.
Such investments are not subject to unwinding.
No approval from the Reserve Bank is required for such investments.
The limit of 400% of the net worth of the Indian Party continues for eligible ECB-funded financial commitments.

The RBI further retained the limit of 400% of the net worth of the Indian Party for financial commitments funded through eligible External Commercial Borrowings (ECBs) raised in accordance with existing RBI guidelines.

A.P. (DIR Series) Circular No. 31

September 04, 2013

External Commercial Borrowings (ECB) from Foreign Equity Holder

On review, the RBI permitted eligible borrowers to avail ECB under the approval route from their foreign equity holder company with a minimum average maturity period of seven years for general corporate purposes.

The approval is subject to the following conditions:

Minimum paid-up equity of 25% must be held directly by the lender.
ECB funds cannot be used for purposes prohibited under existing ECB guidelines, including on-lending to group companies or step-down subsidiaries in India.
Repayment of principal can commence only after completion of the minimum average maturity period of seven years.
No prepayment is permitted before maturity.

The modifications to the ECB guidelines came into force with immediate effect. All other provisions of the existing ECB guidelines remain unchanged.

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RBI Circulars, September 04, 2013 on Overseas Direct Investments (‘ODIs’) and External Commercial Borrowing (‘ECB’)

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RBI Circulars, September 04, 2013 on Overseas Direct Investments (‘ODIs’) and External Commercial Borrowing (‘ECB’)