RBI proposes norms for investments in overseas startups

Reserve Bank came out with a draft framework to facilitate investment in overseas technology funds which deploy money in startups overseas.

The RBI said such investments do not meet the eligibility norms for making overseas direct investments under the automatic route at present.

It elaborated that regulation 6 and 7 of a July 2004 Foreign Exchange Management Act (FEMA) notification pose the difficulties, which can be overcome using regulation 9 of the same notification.

The RBI laid down a slew of conditions to be met for the Indian party wishing to invest in the fund, including a minimum networth of Rs 500 crore, exclusion from the 'caution list' it prepares, total overseas investment is under 400 percent of the networth and earning net profit in last 3 years.

Apart from this, for one time approval, the aggregate or cumulative investment in the overseas technology funds should not exceed 400 percent of the networth of the Indian party or USD 500 million, whichever is less, it said.

The amount to be invested in the Overseas Technology Fund shall be from the internal accruals/group or associate companies in India and not borrowed from the banking system, it said.

The fund's investments in startups overseas should be aligned to the core business activity of the company and proper reporting should take place, it said.