Tag Archives: ODIs

alternate investment fund

RBI circular dated 12th May, 2021 allowing Indian party sponsor to make sponsor contribution to an Alternate Investment Fund set up abroad or in the International Financial Services Centre Unit and it will be considered as overseas direct investment. Read on.

Attention of AD Category – I banks is invited to paragraph A.3.(e) and B.6 of Master Direction No.15 dated January 1, 2016, on “Direct Investment by Residents in Joint Venture (JV) / Wholly Owned Subsidiary (WOS) Abroad”, as amended from time to time and Regulation 7 of the Notification FEMA 120/2004-RB, pertaining to provisions for an Indian Party (IP) making investment/ financial commitment in an entity engaged in the financial services sector.

2. It has been decided that any sponsor contribution from a sponsor IP to an Alternative Investment Fund (AIF) set up in an overseas jurisdiction, including International Financial Services Centres (IFSCs) in India, as per the laws of the host jurisdiction, will be treated as Overseas Direct Investment (ODI). Accordingly, IP, as defined in regulation 2(k) of the Notification ibid. can set up AIF in overseas jurisdictions, including IFSCs, under the automatic route provided it complies with Regulation 7 of the Notification FEMA 120/2004-RB.

3. All the other provisions under the Notification ibid. shall remain unchanged. AD Category – I banks may bring the contents of this circular to the notice of their constituents and customers concerned.

4. The Master Direction No. 15 dated January 01, 2016, is being updated to reflect the changes.

5. The directions contained in this circular have been issued under section 10 (4) and 11(1) of the FEMA and are without prejudice to permissions/approvals, if any, required under any other law.

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Overseas Direct Investments

http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=8305&Mode=0

RBI has reduced the limits for Overseas Direct Investments (ODIs). Hitherto Indian companies were allowed to invest upto 400% of its net worth as ODIs on automatic route. The networth was to be calculated as per its last audited balance sheet. Now the limits have been reduced to 100% of its net worth as per its last audited balance sheet on automatic basis. Any investments above the 100% of net worth will be on approval basis. Therefore there is not a complete ban on overseas investments. 

This reduction in limit from 400% to 100% is also applicable to ODIs in unincorporated entities in the energy and natural gas sectors.

However this reduction in limits is not applicable to overseas investments by navratna public sector undertakings like ONGC Videsh, OIL India in both unincorporated as well incorporated entities on automatic route without any limits whatsoever. 

These provisions will apply with immediate effect to all overseas direct investments on a prospective basis which means that existing overseas direct investments will not be hit by the reduction in limits. 

 

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