RBI Begins Discussions on Easing Overseas Investment Norms

The Reserve Bank of India has begun consultations with select private and multinational banks to review overseas investment rules.  

As per The Economic Times report that senior officials met a group of lenders to understand practical issues faced by companies and individuals. The discussions are focused on areas where procedures may be clarified or made less cumbersome. 

The RBI’s role is largely administrative. Since 2019, the Central Government has handled policy decisions on non-debt overseas investments, while the Central Bank oversees implementation and reporting. 

Limits Under Current Framework 

Under existing rules, an Indian company can invest up to 4 times its net worth, or $1 billion, whichever is lower, in a foreign entity. These investments may be used to set up subsidiaries or acquire businesses abroad. 

In practice, companies report certain difficulties. Plans to set up foreign financial services entities are sometimes held back at the banking level.  

Non-banking finance companies can invest only up to their net-owned funds in overseas NBFCs and are not allowed to invest in non-financial foreign ventures. 

Compliance and Audit Concerns 

Bankers flagged the reporting load attached to small investments. Even minor equity stakes in unlisted foreign companies must be treated as overseas direct investment, requiring valuation of reports and formal filings through authorised banks. 

Audit requirements were also discussed. Some lenders insist on foreign auditors for acquired overseas entities, even where local rules do not require audits for small unlisted firms. This raises costs for smaller transactions. 

Issues Affecting Individuals 

Participants pointed to gaps in the treatment of individual investors. Under the Liberalised Remittance Scheme, residents can remit up to $250,000 a year to buy listed foreign shares. However, proceeds from such investments cannot be reinvested in unlisted foreign equity as overseas direct investment. 

There are also restrictions around employee stock ownership. Indian residents directly hired by foreign parent companies are not eligible to receive shares under overseas ESOP schemes. 

Read More: RBI Proposes Bank Lending to Listed REITs with 49% Exposure Cap! 

Conclusion 

The consultations point to a review of procedural issues in the overseas investment framework. Any changes will depend on policy decisions taken by the government. 

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