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

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

1. The Reserve Bank of India on September 04, 2013 has issued clarifications on the much debated Liberalized Remittance Scheme and issued Circulars regarding Overseas Direct Investments (‘ODIs’) and External Commercial Borrowings (‘ECB’) from foreign equity holder. The weblinks of the aforesaid are as below for ready reference:

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
2. Highlights of the ODIs Circular and ECB Circular are as below:

i A.P. (DIR Series) Circular No. 30 dated September 04, 2013 issued by the Reserve Bank of India, Foreign Exchange Department regarding ‘Overseas Direct Investments – Rationalization/Clarifications’

It is clarified that all the 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. In other words, such investments shall not be subject to any unwinding or approval from the Reserve Bank.

It has been decided further to retain the limit of 400% of the net worth of the Indian Party for the financial commitments funded by way of eligible External Commercial Borrowing (‘ECB’) raised by the Indian Party as per the extant ECB guidelines issued by the RBI from time to time. II.

ii A.P. (DIR Series) Circular No. 31 dated September 04, 2013 issued by the Reserve Bank of India, Foreign Exchange Department regarding ‘External Commercial Borrowings (ECB) from the foreign equity holder’

On a review, it has been decided to permit eligible borrowers to avail of ECB under the approval route from their foreign equity holder company with minimum average maturity of 7 years for general corporate purposes subject to the following conditions:

(a) Minimum paid-up equity of 25% should be held directly by the lender;

(b) Such ECBs would not be used for any purpose not permitted under extant the ECB guidelines (including on-lending to their group companies / step-down subsidiaries in India); and

(c) Repayment of the principal shall commence only after completion of minimum average maturity of 7 years. No prepayment will be allowed before maturity.
The above modifications to the ECB guidelines will come into force with immediate effect. All other aspects of extant ECB guidelines shall remain unchanged.

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