The Reserve Bank of India (RBI) has issued two draft documents viz, Foreign Exchange Management (FEM) (Non-debt Instruments – Overseas Investment (OI)) Rules, 2021 and FEM (OI) Regulations, 2021 by rationalizing the existing provisions that are governing overseas investment.
- Objective: To liberalize the regulatory framework of overseas investments and promote ease of doing business.
- Existing Provisions: Presently, the OI and acquisition of immovable properties outside India by persons resident in India are governed by the provisions of FEM (Transfer or Issue of any Foreign Security) Regulations, 2004 and FEM (Acquisition and Transfer of Immovable Property Outside India) Regulations 2015.
Key Points of the draft:
i.The Draft FEM (Non-debt Instruments -OI) Rules, 2021 has outlined the restrictions on overseas investments.
- As per the draft, a person resident in India is prohibited from making Overseas Direct Investment (ODI) in a foreign entity engaged in Real estate activity, Gambling in any form, and Offering financial products linked to Indian Rupee except for products offered in an IFSC (International Financial Services Centre).
- The draft also prohibited OI in a foreign entity located in countries/ jurisdictions that are not Financial Action Task Force (FATF) and International Organization of Securities Commissions (IOSCO) compliant country or any other country as may be prescribed by the Central Government.
- The mode of payment and other requirements for any investment outside India by a person resident in India should be as specified by the RBI.
ii.The draft on Foreign Exchange Management (OI) Regulations, 2021 enables the Indian entity to lend or invest in any debt instruments issued by a foreign entity subject to such loans duly backed by a loan agreement.
- The rate of interest should be charged on an arm’s length basis.
Note – RBI has asked for comments and feedback from stakeholders on the 2 drafts by August 23, 2021.
Overseas Direct Investment (ODI):
It is the direct investment made by Indian resident in the foreign entity (outside India) by way of contribution to the capital or subscription to the Memorandum of a foreign entity or by way of purchase/acquisition of existing shares in the foreign entity.
-RBI Imposed Rs 1 crore Penalty on Cooperatieve Rabobank UA
i.RBI imposed a monetary penalty of Rs 1 crore on Cooperatieve Rabobank UA, Mumbai, Maharashtra, for contravention of certain provisions of the Banking Regulation Act, 1949 and directions related to ‘transfer to reserve funds’.
- The penalty was imposed by RBI in exercise of powers under the provisions of section 47 A (1) (c) read with section 46 (4) (i) of the Banking Regulation Act, 1949.
Other penalties issued by RBI
i.RBI has also imposed a penalty of Rs 5 lakh on Village Financial Services Ltd, Kolkata, for non-compliance with certain provisions of the Know Your Customer (KYC) Directions, 2016.
ii.RBI also recently imposed a penalty of ₹13 lakh on Ahmednagar Merchant’s Cooperative Bank, Ahmednagar, Maharashtra, and ₹2 lakh on The Mahila Vikas Co-operative Bank, Ahmedabad, Gujarat.
Recent Related News:
Securities and Exchange Board of India (SEBI) enhanced the overseas investment limit for a mutual fund (MF) house to USD 1 billion from the existing USD 600 million. The overall MF industry limit for investing overseas remained unchanged at USD 7 billion.
About Reserve Bank of India (RBI):
Reserve Bank of India has four fully owned subsidiaries.They are
i.Deposit Insurance and Credit Guarantee Corporation of India (DICGC)
ii.Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL)
iii.Reserve Bank Information Technology Private Limited (ReBIT)
iv.Indian Financial Technology and Allied Services (IFTAS)
