Overseas Direct Investment- Liberalisation
Regulations governing overseas investments have further been liberalised by Reserve Bank of India on 14th June 2007 as under :
1. Enhancement of limit for Overseas Direct Investment
In terms of Regulation 6 of the Notification ibid, the total overseas investment of an Indian party in all its Joint Ventures (JVs) and / or Wholly Owned Subsidiaries (WOSs) abroad engaged in any bonafide business activity should not exceed 200 per cent of its net worth. In order to provide greater flexibility to Indian parties (companies incorporated in India or created under an Act of Parliament) for investments abroad, the existing limit of 200 per cent of the net worth of the Indian party has been enhanced to 300 per cent of the net worth. However, the limit applicable to registered partnership firms for overseas investment will continue to be 200 per cent of their net worth. Accordingly, AD Category – I banks may allow overseas investments under the Automatic Route up to 300 per cent of the net worth of the Indian party (other than registered partnership firms), as on the date of the last audited balance sheet.
2. Financial Commitment for overseas investment – guarantees issued by an Indian Party to or on behalf of the JV WOS
In terms of Regulation 2(f) of the Notification ibid, 'financial commitment' means the amount of direct investment by way of contribution to equity, loan and 50 per cent of the amount of guarantees issued by an Indian party to or on behalf of its overseas Joint Venture Company (JV) or Wholly Owned Subsidiary (WOS). As a measure of rationalisation of the extant norms, it has been decided to reckon 100 per cent of the amount of guarantees issued by an Indian party for determining the 'financial commitment' for overseas investment by an Indian party. Accordingly, 'financial commitment' for overseas investment by an Indian party would, henceforth, mean direct investment by way of contribution to equity, loan and the total amount of guarantees by the investing company / promoter company / group company / sister concern or associate company / partnership firm in India. The revised norms will be applicable, with immediate effect, for both new and existing investments.
3. Portfolio Investment by Listed Indian Companies
In terms of Regulation 6B of the Notification ibid, listed Indian companies are permitted to invest up to 25 per cent of their net worth in the equity of listed foreign companies, which are listed on a recognised stock exchange and having shareholding of at least 10 per cent in Indian companies listed on a recognised stock exchange in India and rated bonds / fixed income securities issued by overseas companies, under the portfolio investment scheme. In order to provide greater opportunities to listed Indian companies for portfolio investments, the existing limit of 25 per cent has been enhanced to 35 per cent of the net worth of the investing company as on the date of its last audited balance sheet. All other terms and conditions stipulated in Regulation 6B of the Notification shall remain unchanged.
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