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Reserve bank of India (RBI)

I. External Commercial Borrowings (ECB) – Revised framework

(Notified via RBI//2015-16/349, A.P. (DIR Series) Circular No.56 dated 30th March, 2016)

[Changes made in:

A.P. (DIR Series) Circular No.32 dated November 30, 2015 and paragraph no. 1.8, 2.2, 2.4.1, 2.4.2, 2.4.5, 2.4.6, 2.5, 2.16 and 2.16.xiii of Master Direction No.5 dated January 1, 2016 ]

  1. Taking into account prevailing external funding sources, particularly for long term lending and the critical needs of infrastructure sector of the country, the extant ECB guidelines have been reviewed in consultation with the Government of India. Accordingly, it has been decided to make the following changes in the ECB framework:
    1. Companies in infrastructure sector, Non-Banking Financial Companies -Infrastructure Finance Companies (NBFC-IFCs), NBFCs-Asset Finance Companies (NBFC-AFCs), Holding Companies and Core Investment Companies (CICs) will also be eligible to raise ECB under Track I of the framework with minimum average maturity period of 5 years, subject to 100 per cent hedging.
    2. For the purpose of ECB, “Exploration, Mining and Refinery” sectors which are not included in the Harmonised list of infrastructure sector but were eligible to take ECB under the previous ECB framework (c.f. A.P. (DIR Series) Circular No. 48 dated September 18, 2013) will be deemed as in the infrastructure sector, and can access ECB as applicable to infrastructure sector under (i) above.
    3. Companies in infrastructure sector shall utilize the ECB proceeds raised under Track I for the end uses permitted for this Track. NBFCs-IFCs and NBFCs-AFCs will, however, be allowed to raise ECB only for financing infrastructure.
    4. Holding Companies and CICs shall use ECB proceeds only for on-lending to infrastructure Special Purpose Vehicles (SPVs).
    5. The individual limit of borrowing under the automatic route for aforesaid companies shall be as applicable to the companies in the infrastructure sector (currently USD 750 million).
    6. Companies in infrastructure sector, Holding Companies and CICs will continue to have the facility of raising ECB under Track II of the ECB framework subject to the conditionality’s prescribed thereof.
  1. The companies added under Track I should have a Board approved risk management policy. Further, the designated AD Category-I bank shall verify that 100 per cent hedging requirement is complied with during the currency of ECB and report the position to RBI through ECB 2 returns.
  2. On the ECB framework announced vide aforesaid Circular dated November 30, 2015, it is further clarified that:
    1. The designated AD Category-I banks may, under the powers delegated to them, allow refinancing of ECBs raised under the previous ECB framework, provided the refinancing is at lower all-in-cost, the borrower is eligible to raise ECB under the extant ECB framework and residual maturity is not reduced (i.e. it is either maintained or elongated).
    2. ECB framework is not applicable in respect of the investment in Non-convertible Debentures (NCDs) in India made by Registered Foreign Portfolio Investors (RFPIs).
    3. Minimum average maturity of Foreign Currency Convertible Bonds (FCCBs)/ Foreign Currency Exchangeable Bonds (FCEBs) is 5 years irrespective of the amount of borrowing. Further, the call and put option, if any, for FCCBs shall not be exercisable prior to 5 years.
    4. Only those NBFCs which are coming under the regulatory purview of the Reserve Bank are permitted to raise ECB. Further, under Track III, the NBFCs may raise ECBs for on-lending for any activities including infrastructure as permitted by the concerned regulatory department of RBI.
    5. The provisions regarding delegation of powers to designated AD Category-I banks is not applicable to FCCBs/FCEBs.
    6. In the forms of ECB, the term “Bank loans” shall be read as “loans” as foreign equity holders / institutions other than banks, also provide ECB as recognized lenders.
  3. All other aspects of the ECB policy shall remain unchanged. AD Category - I banks may bring the contents of this circular to the notice of their constituents and customers.
  4. Master Direction No. 5 dated January 01, 2016 is being updated to reflect the changes.
  5. The directions contained in this circular has been issued under section 10(4) and 11(2) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.

II. Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Fifth Amendment) Regulations, 2016

(Notified via Notification No. FEMA.366/2016-RB dated March 30, 2016)

Changes made to: The Foreign Exchange Management (Transfer or issue of Security by a Person Resident outside India) Regulations, 2000 (Notification No. FEMA. 20/2000-RB dated 3rd May 2000) namely:

  1. Amendment of the Schedule 1 – Annexure B
    F.7. Insurance % of equity/FDI Cap Entry route
    F.7.1 Insurance:
    1. Insurance Company
    2. Insurance Brokers
    3. Third Party Administrators
    4. Surveyors and Loss Assessors
    5. Other Insurance Intermediaries appointed under the provisions of Insurance Regulatory and Development Authority Act, 1999 (41 of 1999)
    49% Automatic
  2. Other Conditions
    1. No Indian Insurance company shall allow the aggregate holdings by way of total foreign investment in its equity shares by foreign investors, including portfolio investors, to exceed forty-nine percent of the paid up equity capital of such Indian Insurance company.
    2. The foreign investment up to forty-nine percent of the total paid-up equity of the Indian Insurance Company shall be allowed on the automatic route subject to approval/verification by the Insurance Regulatory and Development Authority of India.
    3. Foreign investment in this sector shall be subject to compliance with the provisions of the Insurance Act, 1938 and the condition that Companies receiving FDI shall obtain necessary license /approval from the Insurance Regulatory & Development Authority of India for undertaking insurance and related activities.
    4. An Indian Insurance company shall ensure that its ownership and control remains at all times in the hands of resident Indian entities as determined by Department of Financial Services/ Insurance Regulatory and Development Authority of India as per the rules/regulation issued by them from time to time
    5. Foreign portfolio investment in an Indian Insurance company shall be governed by the provisions contained in sub-regulations (2), (2A), (3) and (8) of Regulation 5 of FEMA Regulations, 2000 and provisions of the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014.
    6. Any increase in foreign investment in an Indian Insurance company shall be in accordance with the pricing guidelines specified by Reserve Bank of India under the FEMA Regulations.
    7. The foreign equity investment cap of 49 percent shall apply on the same terms as above to Insurance Brokers, Third Party Administrators, Surveyors and Loss Assessors and Other Insurance Intermediaries appointed under the provisions of the Insurance Regulatory and Development Authority Act,1999 (41 of 1999).
    8. Provided that where an entity like a bank, whose primary business is outside the insurance area, is allowed by the Insurance Regulatory and Development Authority of India to function as an insurance intermediary, the foreign equity investment caps applicable in that sector shall continue to apply, subject to the condition that the revenues of such entities from their primary (i.e., non-insurance related) business must remain above 50 percent of their total revenues in any financial year.
    9. The provisions of paragraphs F.2.2 (4) (i) (b) & (d), relating to ‘Banking-Private Sector’, shall be applicable in respect of bank promoted insurance companies.
    10. Terms ‘Control’, ‘Equity Share Capital’, ‘Foreign Direct Investment’ (FDI), ‘Foreign Investors’, ‘Foreign Portfolio Investment’, ‘Indian Insurance Company’, ‘Indian Company’, ‘Indian Control of an Indian Insurance Company’, ‘Indian Ownership’, ‘Non-resident Entity’, ‘Public Financial Institution’, ‘Resident Indian Citizen’, ‘Total Foreign Investment’ will have the same meaning as provided in Notification No. G.S.R 115 (E), dated 19th February, 2015 issued by Department of Financial Services and regulations issued by Insurance Regulatory and Development Authority of India from time to time.

III. Foreign Exchange Management (Establishment in India of a branch office or a liaison office or a project office or any other place of business) Regulations, 2016

[Notified via Notification No. FEMA 22(R)/RB-2016 dated March 31, 2016]

The Reserve Bank of India has issued the above captioned regulations to prohibit, restrict and regulate establishment in India of a branch office or a liaison office or a project office or any other place of business by a person resident outside India.

The said regulations inter-alia include the guidelines under the following heads:

  • Definitions of Act which is the Foreign Exchange Management Act, 1999 (42 of 1999), Authorised Dealer, Foreign Company, Branch Office, Liaison Office, Project Office, Site Office and Stand-alone basis
  • Prohibition against opening a branch office or a liaison office or a project office or any other place of business in India
  • Approval for opening a branch office or a liaison office or a project office or any other place of business in India covering:
    1. Eligibility
    2. Permissible Activities,
    3. Application Form,
    4. Extension of the validity period for liaison office,
    5. Additional Offices,
    6. Project office,
    7. Registration with State Police Authorities,
    8. Fund/non-fund based facilities,
    9. Remittance of profit or surplus,
    10. Acquisition of property,
    11. Transfer of assets,
    12. Annual Activity Certificate (AAC),
    13. Closure of office and remittance of winding up proceeds
  • Approval of the Reserve Bank in certain cases for establishment of branch office, liaison office or project office or any other place of business in India

The details of the notification can be viewed at the link provided with the title of the said regulations above.

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