Overseas investments set for smoother route as RBI reviews norms: Report

The RBI lost the power to to frame policies on non-debt overseas investment in 2019.

• RBI met banks to discuss easing overseas investment procedures
• Banks suggested simplifying rules and clarifying policies
• Ambiguities and unofficial curbs seen as discouraging outflows

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With a large number of high net worth individuals seeking overseas investment, the Reserve Bank of India (RBI) recently held a meeting with both private and MNC banks to smoothen overseas investment, a report by The Economic Times said.

According to the report, the banks offered several suggestions--some to simplify procedures while others linked to policies---in the meeting.

Though the RBI’s stance on overseas investment is significant, the central bank's role is largely limited to administer regulations as it lost the power to frame policies on non-debt overseas investment in 2019, which since then are decided by New Delhi, the newspaper said. Many bankers believe that ambiguities and unofficial curbs discourage outflows, ET reported.

According to the report, a slew of procedural and contentious issues pertaining to overseas investment was taken up for discussions during the meeting with the bankers.

1.       A domestic company can invest up to four times its net worth (or, $1 billion, whichever is lower) as ODI to either incorporate or acquire a foreign company, subject to do’s and don'ts-some coded, some imposed informally.

2.       A local non-banking finance company (NBFC) can chip in not more than its net-owned fund in owning an offshore NBFC, and is barred from investing in businesses which are not financial services.

3.       A company is barred from trading in foreign real estate but is allowed to construct properties to lease them out. However, it can’t acquire properties abroad to lease them out or invest in service apartments

4.       RBI recently proposed letting unregistered Type-I NBFCs (with less than ₹1,000 crore assets) to invest in overseas non-financial sectors, but insisted on RBI registration and approval for investments in foreign financial services entities.

5.       Individuals who remitted $250,000 abroad buying listed stocks under the RBI's Liberalised Remittance Scheme cannot invest the proceeds (from the sale of stocks) as ODI in unlisted shares.

6.       An Indian resident who is directly hired by a foreign parent company as a consultant, and not employed with its Indian subsidiary, is not eligible under the OI rules to acquire shares of the parent under its ESOP scheme

A banker ET spoke to said the rule to audit overseas companies acquired as ODI is onerous, particularly where audits for small unlisted entities are not compulsory. Some banks insist on foreign auditors which can be expensive.

"It is imperative that RBI, being the administrative body, influences the government to carry out necessary amendments to ease outbound investments. Also, RBI should proactively clarify for Indian investors and advisors to take a consistent stand," Vihal Gada, founder and CEO of Aurtus, a boutique firm offering tax, transaction, and regulatory services told ET.