The Reserve Bank of India (RBI) lies at the apex of the banking and financial structure of the country. Recently, it published various notifications that loosened certain restrictions and espoused a smooth-running of its policies. The predominant features are discussed hereunder.
1. FDI norms liberalized for NBFC’S:
During the Budget Speech of 2016, the Esteemed Finance Minister declared the extension of overseas investment beyond the 18 enumerated non-banking financial companies. Under an automatic route, FDI up to 100% is permitted for ‘other financial services’, subject to the condition that they are governed by any financial service regulator, such as the RBI, SEBI, IRDA and so on. The central bank has paved the way for a greater inflow of investment via a string of actions that has liberalised FDI regulations. Additionally, minimum capitalisation regulations as necessitated under the apex bank’s norms have been quashed.
2. Provisions regarding Foreign Venture Capital Investors (FVCI)
The extant regulatory provisions pertaining to investment by a Foreign Venture Capital Investor (FVCI) have been reviewed and revised by way of Circular 7, dated October 20, 2016. Consequently, FVCI’s are empowered and allowed to invest in specific areas, even without obtaining RBI’s assent for the same. With regard to unlisted companies, FVCI’s can invest in equity, equity-related instruments or debt instruments in certain sectors, comprising biotechnology, dairy industry, Research and development of new chemical entities in pharmaceutical sector, infrastructure etc. The circular issued by the RBI stipulated that no restraint on the transfer of any security or instrument held by the FVCI to any person residing in or outside India, will be imposed. Importantly, an FVCI can make investments into a “startup”, regardless of the sector to which it belongs. It specifies that a Venture Capital Fund, which has acquired an inflow of downstream investment from a FVCI must adhere to the regulations prescribed for downstream investment.
3. Sectoral Caps- Updated
Following the myriad alterations and provisions envisaged to conditions exclusive to certain sectors, the central bank has incorporated a system for easing the flow of foreign direct investment. Simply put, sectoral caps are the maximum amount that may be invested by overseas investors in an entity. It now consists of any and every foreign investment, direct and indirect, irrespective of the Schedule under which the investment is made. The chief pronouncements are the inauguration of a composite sectoral cap, foreign exchange management and foreign investment in LLPs.
4. Draft Framework on External Commercial Borrowings
RBI has streamlined regulations and ensured an easy flow of venture funds to startup propositions and has relaxed the norms for external commercial borrowings. It has expanded the list of recognised lenders and prescribed more flexible conditions for long term borrowings made in foreign currency. Striving to simplify the provisions regarding ECB’s, the RBI has announced that banks accept pleas from debtors for the extension of matured but outstanding ECBs, if no extra expense is borne, lender’s approval is permissible and reporting mandates are fulfilled.
The aforementioned revisions have opened the gates to boost the availability of fundraising opportunities for Indian companies from overseas investors and lenders.