RBI eases India Inc’s overseas investment norms

Providing more operational flexibility to Indian corporates with investments abroad,the Reserve Bank of India has relaxed the investment norms governing performance guarantees,write-offs,restructuring and corporate guarantees.

As per the modified norms,only 50 per cent of the amount of performance guarantee provided by Indian companies to overseas ventures will be taken into account while computing the overall exposure limit. Indian companies are allowed financial commitments in overseas ventures up to 400 per cent of their net worth. Under the old norms,100 per cent of the performance guarantee is taken into account while calculating the overall exposure limit of an Indian company. Further,the RBI said the time specified for completion of the contract may be considered as the validity period of the related performance guarantee. The Indian company may report these guarantees in the similar way in which financial guarantees are being presently reported. In cases where invocation of the performance guarantees breach the ceiling for the financial exposure of 400 per cent of the net worth of the Indian company,it will seek the prior approval of the RBI before remitting funds from India,on account of such invocation. The modified norms will allow firms greater headroom for overseas investments.

The RBI has also decided to allow Indian corporates to write off capital and other receivables like loans,royalty,technical know-how fees and management fees in respect to those joint ventures and wholly owned subsidiaries (WOS) in which they have more than 51 per cent stake. The existing FEMA Regulations do not provide for the restructuring of the balance sheet of the overseas JV and WOS not involving winding up of the entity or divestment of the stake by the company.

“Listed Indian companies are permitted to write off capital and other receivables up to 25 per cent of the equity investment in the JV or WOS under the Automatic Route and unlisted companies are permitted to write off capital and other receivables up to 25 per cent of the equity investment in the JV /WOS under the Approval Route,” the RBI said. The write-off / restructuring will have to be reported to the RBI through the designated bank within 30 days of restructuring.