The Ministry of Finance recently introduced new norms aimed at making it simpler for domestic corporates to invest abroad. These regulations impose stricter measures on loan defaulters and those under investigation by investigative agencies, making it harder for them to invest in overseas entities.
Key Highlights of the New Rules
The newly notified Overseas Investment Rules and Regulations under the Foreign Exchange Management Act are set to subsume all existing norms related to overseas investments and the acquisition and transfer of immovable property outside India. These rules will be administered by the Reserve Bank of India (RBI).
No Go Sectors and Special Approvals
Certain individuals and sectors have been specifically restricted from taking advantage of these new provisions. A No-Objection Certificate (NOC) is now mandatory for any individual who has a bank account classified as a Non-performing asset, or who is designated a wilful defaulter by any bank, or who is under investigation by a financial service regulator, the Enforcement Directorate (ED), or the Central Board of Investigation (CBI). Furthermore, no Indian resident is now allowed to invest in foreign entities involved in real estate, gambling in any form or dealing with financial products linked to the Indian rupee without specific approval from the central bank.
Sixty Day Timeline for NOC
In an attempt to streamline the process, the new rules also state that if the relevant regulatory body or investigative agency fails to issue the NOC within sixty days of receiving an application, it can be presumed that they have no objection to the proposed transaction.
Significance of the Revised Regulatory Framework
These changes signify a significant step towards the simplification of the existing framework for overseas investment. They are aligned with current business and economic dynamics and bring clarity on overseas direct investment and overseas portfolio investment. The automatic approval route will now administer various overseas investment-related transactions, thus significantly enhancing ease of doing business.
Explanation: Understanding Financial Terminologies
A Participatory Note or P-note is an instrument issued by a registered Foreign Institutional Investor to an overseas investor who wishes to invest in Indian stock markets without registering themselves with the market regulator, the Securities and Exchange Board of India (SEBI). A Certificate of Deposit is a savings certificate which has a fixed maturity date and specified fixed interest rate, and can be issued in any denomination barring minimum investment requirements. Commercial Paper is an unsecured money market instrument issued in the form of a Promissory Note. It was introduced in India in 1990 to enable highly rated corporate borrowers to diversify their sources of short-term borrowings and to provide an additional instrument to investors. A Promissory Note is a financial instrument that contains a written promise from one party to pay another party a definite sum of money, either on demand or at a future date.
