Jurisdiction - India
India – Foreign Exchange Snapshots.

28 January, 2014


Legal News & Analysis – Asia Pacific – India – Banking & Finance


  • RBI, by way of a circular dated November 1, 2013, has incorporated the definition of “Group Company” in the Consolidated Foreign Direct Investment Policy, 2013 (‘FDI Policy’). “Group Company” is defined as two or more enterprises that directly or indirectly, are in a position to: (i) exercise 26% or more of voting rights in the other enterprise; or (ii) appoint more than 50% of the members of the board of directors in the other enterprise. Previously, the term “group” was not defined, but was used in the FDI Policy, and its insertion provides clarity for the identification of such ‘largest Indian shareholder’, which is a necessary requirement in the context of equity caps and other restrictions imposed on residents by regulatory authorities. Also, this clarification is expected to clarify the entities that Indian multi brand retail companies may sell to, since the FDI Policy imposes a limit on sale by such foreign investment funded venture to its “Group Company”, which is now a defined term.


  • RBI, by a circular dated November 8, 2013, and the Ministry of Finance, by a notification dated October 11, 2013, have permitted unlisted public companies incorporated in India to raise capital abroad by issuing American Depository Receipts (‘ADRs’) and Global Depository Receipts (‘GDRs’), without the requirement of prior or subsequent listing in India, subject to certain conditions, on a pilot basis for a period of two years. Unlisted public companies desiring to raise capital through ADRs and GDRs are required to comply with certain conditions, which inter alia include compliance with the foreign direct investment regulations and instructions on downstream investment, and pricing of ADRs and GDRs, to be determined in accordance with the Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Mechanism) Scheme, 1993. The ADRs and GDRs may be issued subject to sectoral caps, entry route restrictions, pricing norms etc., and the number of underlying equity shares offered for their issuance are to be determined upfront. Further, such capital raised offshore may be used for retiring outstanding overseas debt or for bona fide operations abroad including foreign acquisitions. If such funds are not utilised as permitted, the company will be required to repatriate the funds to India within 15 days.


  • RBI, by way of a circular dated November 11, 2013, has waived the requirement of obtaining the No Objection Certificate (‘NOC’) for transfer of shares from residents to non-residents where the investee company is engaged in the financial services sector. Moreover, any fit and proper/ due diligence requirement as regards the non-resident investor, as prescribed by the respective financial service regulator, will have to be complied with. This circular overrides the provisions of the earlier RBI circular, dated November 4, 2011, which mandated an NOC from the respective financial sector regulator(s) of the investee company as well as the transferor and transferee entities, to be filed with form FC-TRS when the investee company is in the financial sector.


  • RBI, by its previous circular dated March 2, 2010, had permitted foreign institutional investors (‘FIIs’), qualified foreign investors (‘QFIs’) and long term investors registered with SEBI to invest in government securities and corporate debt, subject to limits of US$ 30 billion and US$ 51 billion respectively. By another circular dated June 26, 2013, RBI had further permitted eligible non-resident entities to provide credit enhancement to the domestic debt raised through issue of Indian Rupee bonds or debentures by borrowers eligible to raise external commercial borrowings under the automatic route. RBI, by way of a new circular dated November 11, 2013, has permitted such SEBI registered FIIs, QFIs, and long term investors to invest in the credit enhanced bonds up to a limit of US$ 5 billion within the overall limit of US$ 51 billion earmarked for corporate debt.


  • RBI, by a circular dated November 29, 2013, has directed that investments made directly or indirectly by any person, whether resident or otherwise, in a credit information company, should not exceed 10% of the equity capital of the investee company. RBI may, however, consider allowing higher FDI limits of: (i) up to 49%, if ownership is not diversified; and (ii) up to 74% if ownership is diversified, to entities that have an established track record of running a credit information bureau in a well regulated environment. If ownership is not well diversified, at least 50% of the directors of the investee company must be persons of Indian origin, subject to the condition that one third of the directors are Indian nationals, resident in India. RBI has further clarified that the investor company should preferably be a listed company which appears to imply that listed investor companies are more likely to receive the RBI approval for higher FDI limits. In case the investor in a credit information company is a wholly owned subsidiary of an investment holding company, the aforesaid conditions will be applied to the operating group company engaged in credit information business.


  • RBI, by a circular dated October 10, 2013, has widened the access of the Authorised Dealers Category – I (‘AD – I’) banks to overseas funds. AD – I banks are now permitted to borrow funds from their head offices, overseas branches or correspondents outside India, or any other entity as permitted by RBI.




For further information, please contact:


Zia Mody, AZB & Partners
[email protected]


Abhijit Joshi, AZB & Partners 
[email protected]

Shuva Mandal, AZB & Partners 
[email protected]


Samir Gandhi, AZB & Partners
[email protected]

Percy Billimoria, AZB & Partners 
[email protected]


Aditya Bhat, AZB & Partners 
[email protected]


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