Presentation - ICAI | Online Web TV

FEMA – Outbound Investments,
External Commercial Borrowings
And Deposit Regulations
CA Shabbir Motorwala
7 February 2014
• Foreign Exchange Regulations
• Outbound Investments
• External Commercial Borrowings
• Deposits
Outbound Investments
Outbound - framework under FEMA
• Overseas Direct Investments (ODI) - General Statutory framework
• Section 6 of FEMA 1999 - Capital Account Transactions
• FEM (Transfer or Issue of any Foreign Security) Regulations, 2004 (‘FEMA 120’)
• Master Circular on Outbound Investments dated 1 July 2013 (updated as on 22 October 2013)
• AP (DIR Series) Circulars issued by RBI from time to time especially after the Master Circular
• FAQs issued by the RBI (latest version on RBI website - 22 October 2013)
• Portfolio Investments - Also relevant for Individuals:
• Liberalised Remittance Scheme (‘LRS’) - Portfolio Investment Scheme (‘PIS’) (FEMA 1)
• Master Circular on Miscellaneous Remittances (Currently updated till 5 September 2013 on RBI
• FAQs issued by RBI (latest version on RBI website - 13 November 2013)
Who can make Overseas Direct Investment (‘ODI’) outside India?
• An Indian Party who is:
• a company incorporated in India; or
• a body created under an Act of Parliament: or
• a partnership firm registered under the Indian Partnership Act, 1932
• any other entity in India as may be notified by the Reserve Bank
• An Individual – Person Resident Outside India
• Special cases (primarily under approval Route)
• Proprietary Firm
• Trust / Society
• Un-incorporated Entities
• LLPs – not permitted?
What is the meaning of ODI?
• Investment by an Indian Party by way of contribution to the capital or subscription to the MOA of a
foreign entity or by way of purchase of existing shares of a foreign entity by:
− Investment through stock exchange or
− Private placement in that entity or
− Market purchase
− Investment in a Joint Venture or Wholly Owned Subsidiary abroad,
• But does not include Portfolio Investment
What are the routes for ODI?
Routes for ODI
approval of
•Specifically prohibited activities – Real Estate and Banking Business
Real Estate Business means buying and selling of real estate or trading in Transferable Development
Rights but does not include development of townships, construction of residential/commercial premises,
roads or bridges
What are the conditions for ODI under Automatic route?
• An Indian Party can make direct investment in JVs / WOSs outside India (Pakistan under Approval Route)
without any RBI approval if:
• Overseas JVs / WOSs to be engaged in bonafide business activity except real estate and banking
(Investment in Financial Sector should comply with additional conditions)
• Indian party not on RBI’s Exporters’ Caution list / list of defaulters / under investigation by an Authority
• Overall ceiling of financial commitment in all JVs / WOSs is 100% of net worth as on last audited
Balance Sheet subject to certain exceptions (reduced from 400% w.e.f August 14, 2013)
• Submission of Form APR in respect of all its overseas investments
• Indian Party to approach the designated AD Bank with an application in Form ODI with prescribed
• AD Bank to submit Form ODI online with RBI for generation of UIN
• Valuation imperatives to be complied with (see next slide)
What are the additional conditions for ODI in Financial Sector?
• Financial service sector not defined in the regulations
• Guidance can be taken from Inbound Regulations and ODI form
• E.g. Banks, NBFC, Insurance, Asset management etc.
• Trading in Commodities Exchanges overseas and setting up JV/WOS for trading in overseas
exchanges will be reckoned as Financial services activity
• Additional conditions to be satisfied for ODI in financial services sector:
• Registration with appropriate regulatory authority in India
• Track record of net profits in preceding 3 years from financial services activity
• Approval from concerned regulators in India and abroad for such investment
• Compliance with prudential norms relating to capital adequacy norms as prescribed by the concerned
regulatory authority in India
ODI - What are the regulations under Automatic route?
• Valuation imperatives:
• Incase of partial / full acquisition of existing foreign company and where the investment is more than
USD 5 Mn, valuation of shares by Category 1 Merchant Banker registered with SEBI; or Investment
Banker / Merchant Banker outside India registered with appropriate regulatory authority in the host
• Valuation required even for additional investment in WOS if shares issued at premium or discount (as
per FAQ)
• In all other cases a Chartered Accountant / Certified public Accountant.
• Valuation guidelines also relevant for Approval Route
ODI – How to compute networth?
• Networth = Paid up capital + Free Reserves (in case of corporates)
• For calculation of Net worth of the Indian party following to be considered:
• Net worth of the Indian Investing company
• Net worth of its Indian Holding company which holds at least 51% stake therein subject to letter of
• Net worth of its Indian Subsidiary Company –holding of at least 51% and subject to letter of disclaimer*
* The facility not available to partnership firms.
What is Financial Commitment?
• Financial Commitment in any JV / WOS consists of:
• 100% of the amount of equity shares;
• 100% of the amount of compulsorily and mandatorily convertible preference shares;
• 100% of the amount of other preference shares;
• 100% of the amount of Loan;
• 100% of the amount of guarantee (other than performance guarantee) issued by the Indian Party
• 100% of the amount of bank guarantee (BG) issued by a resident bank on behalf of JV or WOS of the
Indian party and the BG is backed by a counter guarantee/collateral by the Indian party
• 50% of the amount of performance guarantee
What are the methods of funding ODI?
• Investment in overseas JV/WOS can be funded out of following resources:
− Purchase of currency from open market from an AD
− Capitalization of export proceeds
− Swap of shares – subject to FIPB approval
− Proceeds of ECBs / FCCBs*
− Exchange of ADRs / GDRs
− Proceeds of ADRs / GDRs**
− Balance held in EEFC account**
*For financial commitment funded by way of External Commercial Borrowings (ECB), the limit of 400% of
networth shall apply
**Ceiling of 100% of networth will not apply
What are restrictions on loan / guarantee to overseas JV / WOS?
• Indian party may extend a loan / guarantee to only to an overseas JV / WOS in which it has equity
participation else prior RBI approval required
• Guarantee can be corporate, personal, primary or collateral, guarantee by promoter company / group
company / sister concern / associate company in India
• No guarantee can be open ended
• Invocation of guarantee in excess of 100% of net-worth – remittance to require prior RBI approval
• Guarantees issued prior to August 14, 2013 – limit of 400% applicable
• Guarantee to step down subsidiaries
• Corporate guarantee on behalf of first level step down operating subsidiaries under the Automatic Route
• Corporate guarantee on behalf of second generation and subsequent level step down operating
subsidiary to be considered under Approval Route
• All corporate guarantees required to be reported in ODI Part II
What are the regulations under Approval route?
• Cases not covered under Automatic route
• Specific application to RBI with necessary documents in Form ODI through the AD (Category I Bank) along
with prescribed supportings and documents – see next slide
• RBI would inter alia consider the following factors:
• Prima facie viability of JV/WOS outside India
• Contribution to external trade and other benefits which will accrue to India through such investment
• Financial position and business track record of the Indian party and foreign entity
• Expertise and experience of the Indian party in the same or related line of activity of the JV / WOS
outside India
What is the procedure for ODI under Approval route?
Plain paper application with Form ODI through AD Bank along with the following documents:
• Report from the bankers of the Indian party in sealed or closed cover
• Latest Annual Accounts of Indian company along with director’s report
• If acquisition of existing foreign company following additional documents
• Copy of certificate of incorporation of foreign entity
• Latest Annual Accounts of foreign entity along with Director’s Report
• Valuation certificate for the shares of the foreign entity
• Certified copy of the Board Resolution of Indian company
• If investment is in Financial Service sector – Certificate from Statutory Auditors / independent practicing CA
for Compliance of the specified additional conditions
• Approval from concerned onshore and offshore regulatory authorities to be obtained
What are the obligations of the Indian Party?
• Receive share certificates / documentary evidence within six months
• Repatriate to India all dues receivable form the foreign entity (dividend, royalty, technical fees, etc) within
60 days of its falling due
• Submit the Annual Performance report (APR) – Part III of Form ODI within three months of the closing of
annual accounts of the JV / WOS. If the law of the host country does not mandatorily require auditing of
books, the APR may be submitted by the Indian party based on un-audited annual accounts of the JV /
WOS provided:
• The statutory auditors of the Indian party certify that “the un-audited annual accounts of the JV / WOS
reflect the true and fair picture of the affairs of JV / WOS and
• That the un-audited annual accounts of the JV / WOS has been adopted and ratified by the Board of
the Indian party.
• Post Investment Changes / additional investment in existing JVs/WOSs should be reported to RBI through
AD Bank within 30 days from the date of the approval of changes / investments and include the same in
APR - Part III of Form ODI
How can one disinvestment from an overseas JV/WOS? (1/3)
• Transfer by way of sale of shares of a JV/ WOS to another Indian Party or to a non-resident allowed subject
to the following conditions:
• Sale does not result in write-off of the investments made;
• Shares of the listed JV/WOS – sale through a stock exchange;
• Unlisted shares – share price is not less than the value certified by a CA/CPA as the fair value based
on latest audited financial statements of the JV/WOS
• Indian party does not have any outstanding dues like dividend, technical know-how fees, royalty,
consultancy, commission or other entitlements, and/or export
• Overseas concern has been in operation for at least one full year and the APR and accounts has been
submitted to RBI
• Indian party is not under investigation by CBI/ DoE/ SEBI/ IRDA or any other regulatory authority in
• The Indian party to submit details of the disinvestment through its AD within 30 days from date of
How can one disinvestment from an overseas JV/WOS? (2/3)
Transfer by way of sale of shares of JV / WOS involving write off of the investment:
• Disinvestments without prior approval of the RBI, where the amount repatriated on disinvestment is
less than the amount of the original investments is permitted in the following cases:
- JV/ WOS is listed in overseas stock exchange
- Where the Indian Party is listed on a stock exchange in India and has net worth of not less than Rs.
100 Cr
- Where the Indian Party is an unlisted company and the investment in the overseas venture does
not exceed USD 10 million
- Where the Indian Party is a listed company with net worth of less than Rs.100 crore but investment
in an overseas JV/WOS does not exceed USD 10 million
• An Indian Party, which does not satisfy the conditions stated above, shall have to apply to RBI for
prior permission
How can one disinvestment from an overseas JV/WOS? (3/3)
Restructuring of Balance Sheet
• Indian parties which have overseas WOS/ have at least 51% stake in JV, may write off capital
(equity/preference shares) or other receivables such as loans, royalty, technical know-how fees and
management fees in respect of such JV/ WOS, even while such JV/ WOS continues to function as
- Listed Indian Companies – up to 25%of the equity investment in JV/ WOS under the Automatic
Route; and
- Unlisted Indian Companies – up to 25% of the equity investment in JV/ WOS under the Approval
• Reporting to RBI within 30 days of such restructuring/ write-off:
- Certified copy of Balance Sheet showing the loss in JV/ WOS
- Projections for next 5 years indicating consequential benefit of such restructuring / write-off
Can Resident Individuals invest outside India?
• Resident Individuals are granted general permission to purchase / acquire securities:
• Out of funds held in Resident Foreign Currency (‘RFC’) account
• Bonus shares on securities held
• Foreign currency resources outside India (when not permanently resident in India, etc)
• Under Gift or Inheritance
• To acquire share under cashless ESOP issued by a company outside India provided no remittance
from India
• To purchase shares under ESOP (several conditions stipulated)
• To acquire of shares of a foreign company offered as consideration for professional services rendered
to the foreign company (within LRS ceiling)
• To acquire qualification shares on becoming director of overseas company – within LRS ceiling
• To acquire right shares provided original holding is as per the law
• To acquire shares of JV / WOS of Indian Company engaged in Software by the Employees / Directors
(USD 10,000 in a block of five calendar years plus other conditions)
Can Resident Individuals invest outside India?
• ODI by Resident Individual
• Covers strategic investments as compared to portfolio investments covered under LRS
• The investment by Resident Individuals would be restricted to limits under the Liberalized Remittance
Scheme – currently USD 75,000
• Even if investment is from EEFC / RFC account
• JV / WOS to be located in non-FATF countries and to be an operating entity (real estate / banking /
financial services business prohibited)
• JV / WOS not allowed to set-up or acquire step down subsidiary
• Valuation guidelines, reporting requirements and other conditionalities (Form ODI, etc) applicable
What are the regulations under LRS?
• LRS available to all Resident individuals (RI) including minors (singularly or jointly)
• RI can remit overseas up to USD 75,000 per financial year for any permissible current / capital account
• RI can acquire and hold shares or any other asset outside India without prior approval of RBI using the
LRS. (cannot acquire immoveable property)
• RI can open, hold and maintain foreign currency accounts with a bank outside India for remittances
under the scheme without the prior approval of RBI.
• Income and sum remitted need not be brought back into India and can be reinvested overseas
• Remittances inter alia not permitted for:
• Remittance directly or indirectly to Bhutan, Nepal, Mauritius or Pakistan;
• Remittances to specified non- cooperative countries / territories or those identified by the Financial
Action Task Force as ‘non-co-operative Countries or Territories’
• Remittance by a resident individual for setting up a company abroad (post setting up by any other
PROI, fresh issue or acquisition of shares is fine)
What are the other regulations for outbound investments?
• Mutual Funds
• Aggregate ceiling for overseas investment by Mutual Funds registered with SEBI is $7 bn
• A limited number of qualified Indian Mutual Funds are permitted to invest cumulatively upto $1 bn in
Overseas Exchange Traded Funds
• Domestic Venture Capital Fund (‘DVCF’)
• SEBI registered DVCF may invest in equity and equity linked instruments of off-shore Venture Capital
Undertakings, subject to an overall limit of $500 mn
• Accordingly, DVCF desirous of availing of this facility may approach SEBI for necessary permission
• Other cases
• Overseas listed portfolio investments (shares, etc) by listed Indian company (till 50% net-worth)
What are the regulations ODI by Registered Trust / Society?
• Trust / Society, with prior approval from RBI, are allowed to set up JV / WOS outside India subject to
following conditions:
• engaged in manufacturing / educational / hospital sector
• Trust / Society should be registered under Indian Trust Act / Societies Registration Act
• Trust deed / MOA permits proposed investment
• Proposed investment approved by trustees / governing body of the Trust / Society
• AD is satisfied that the trust / society Is KYC compliant and engaged in bonafide activity
• Trust / Society has been in existence atleast for a period 3 years
• Not come under adverse notice of Regulatory / Enforcement agency like DoE / CBI etc.
What are the regulations for ODI by Proprietorship concern /
unregistered partnership?
• Proprietary concerns and unregistered partnership firms, with prior approval from RBI, are allowed to set
up JV / WOS outside India subject to following conditions:
• Recognized star export house with proven track record i.e. export outstanding does not exceed
10% of average export realization of preceding three years
• AD is satisfied that the exporter is KYC compliant
• Exporter is not on the caution list of RBI / adverse notice from any Government agency like
Directorate of Enforcement (DoE) and CBI
• Amount of proposed investment outside India does not exceed:
• 10% of the average of 3 financial years export realization or
• 200% of net owned funds of the firm
whichever is lower
External Commercial Borrowings
What is the framework under FEMA?
Statutory Framework
• Section 6 Sub-section 3 of Foreign Exchange Management Act,1999
• Regulations – FEMA 3 /2000-RB on Foreign Exchange Management (Borrowing and Lending in Foreign
• Other Notifications
• RBI Master Circular No. 12/2013-14 – 1 July 2013 (Updated as on 20 September 2013)
• Circulars issued by RBI from time to time.
What are the key concepts for ECB?
• The following are the key six essential concepts to be considered for ECB:
• Eligible borrowers
• Recognised lenders
• End use (purpose of borrowing)
• Amount and Maturity
• All-in-cost ceilings (rate of interest, etc)
• Procedure and filings
What is covered under the ambit of ECB?
• Pure loans / debts
• Loans from overseas investor / group companies
• Bank Loans
• Supplier’s Credit
• Buyer’s Credit
• Securitized Instruments [Floating Rate Notes and Fixed Rate Bonds, Non-Convertible, Optionally
Convertible or Partly Convertible Preference Shares]
• Foreign Currency Convertible Bonds (FCCB)
• Foreign Currency Exchangeable Bonds(FCEB).
• Redeemable or Optionally Convertible Preferences Shares
What are the available routes for ECB?
Routes available
Approval Route
Automatic Route
• No approval of the Reserve Bank of India
(‘RBI’) / Government of India
• Obtain Loan Registration Number (‘LRN’)
from the RBI (Form 83)
• Monthly filings with RBI (Form ECB 2)
Approval of RBI through Authorized
Dealer Bank (‘ADB’) required (Form
Obtain LRN from the RBI (Form 83)
Monthly filings with RBI (Form ECB 2)
Who are Eligible Borrowers under Automatic Route?
• Indian Corporate(s) in Real-Industrial Sector, Infrastructure Sector, Units in Special Economic Zone; and
those in specified Service sectors i.e. Hotels / Hospitals / Software.
• Units in SEZ for own requirement
• Non Banking Finance Companies (‘NBFC’) – Industrial Finance Companies,
• NBFC – Asset Finance Companies
• Micro Finance Institutions and Non-Government Organizations engaged in micro finance activities
subject to conditions
• Holding Companies / Core Investment Companies (CICs) regulated by RBI, subject to conditions for
project use in SPVs – Capex
Individuals, Trusts and Non-profit making organizations not eligible to raise ECB
Who are Eligible Borrowers under Approval Route?
• Cases outside the purview of automatic route and limits.
• EXIM bank for on-lending and specific purposes
• Banks / FIs participating in textile / steel restructuring subject to conditions
• Housing Finance Companies for raising FCCB subject to conditions
• SPVs set up to finance infrastructure companies / projects
• SEZ / National Manufacturing Investment Zone developers for providing infrastructure facility within the
• Indian Corporate(s) in service sectors other than Hotel, Hospital and Software Sector i.e. mainly R&D,
miscellaneous service companies, etc for ECBs from foreign equity holders
• Holding Companies / Core Investment Companies (CICs) regulated by RBI, subject to conditions for project
use in SPVs – Refinancing of Rupee loans
• Multi-State Co-operative Society engaged in manufacturing subject to conditions
• Corporates under investigation – in all cases
Who are Recognized Lenders – 1/2
a) Under Automatic Route as well as Approval Route
• International Banks, International Capital Markets, Multilateral Financial Institutions (e.g. IFC, ADB, CDC),
Regional Financial Institutions, Government Owned Development Financial Institutions
• Export Credit Agencies, Suppliers of Equipment
• Foreign Collaborators
b) Under Automatic Route
• Foreign Equity Holders (other than erstwhile OCBs)
• ECB up to USD 5Mn – directly holds at least 25% paid up equity of borrower company
• ECB more than USD 5Mn – Holds 25% paid up capital and ECB Liability – Equity Ratio does not
exceed 4:1 (paid-up capital, free reserves, proportionate share premium, etc corresponding to the
foreign lender)
c) Other organization / Individual - only to NGOs and MFIs engaged in Micro finance sector subject to
Who are Recognized Lenders – 2/2
c) Under Approval Route
• Foreign Equity Holders (other than erstwhile OCB) if
• ECB up to USD 5Mn – directly holds at least 25% paid up equity of borrower company
• ECB more than USD 5Mn – Holds 25% paid up capital and ECB Liability – Equity ratio does not
exceed 7:1
• Indirect Equity Holder (Provided the indirect equity holding is at least 51%)
• Group Company (Provided both the borrower and the lender are subsidiaries of the same parent)
How can ECB be utilized? (End-use)
Key items under the Automatic Route
• Investment such as import of Capital Goods, New projects, Modernization / expansion of existing
production units in Real Industrial / Specified Service / Infrastructure sector – the scope of infrastructure
recently expanded to included several sectors such as water, sanitation, energy, etc.
• Direct investment in overseas JVs / Wholly owned subsidiaries subject to guidelines
• Acquisition of shares in disinvestment process for PSU shares
• Interest during construction for Indian Companies which are in the Infrastructure sector
• Lending to self help groups or for micro credit or for micro finance activity by NGO
• Capital Expenditure for maintenance and operations of toll systems for roads and highway
• Payment for Spectrum Allocation
Not Permitted - On lending, investment in capital markets or acquiring an Indian Company (or part thereof), Real
Estate Sector, Land costs not eligible for service sector
How can ECB be utilized? (End-use)
Key items under the Approval Route
• In addition to as prescribed under the automatic route:
• Refinance of Rupee loan availed for spectrum allocation payment subject to conditions
• Repayment of rupee loan for specified sectors subject to conditions
• Import of services, technical know-how and payment of license fees as part of import of capital goods
subject to conditions
• General corporate purposes including for working capital and repayment of rupee loans subject conditions
only from foreign equity holder (+25%)
• Bridge Finance (Infrastructure Co. only), Low Cost Affordable Housing, 3G Spectrum Allocation, etc.
How much ECB can be availed and for what duration?
Automatic Route
Maximum Amount (During FY)
Real - Industrial / Infrastructure
USD 750 Mn or its equivalent
Hotels, Hospital and Software (Service)
USD 200 Mn or its equivalent
NGOs and MFIs engaged in Micro Finance Activity
USD 10 Mn or its equivalent
Approval Route
Maximum Amount (During FY)
Real - Industrial / Infrastructure
: Beyond USD 750 Mn or its equivalent
Hotels, Hospital and Software (Service)
: Beyond USD 200 Mn or its equivalent
Minimum Average Maturity – Weighted Average Method as stipulated:
• For ECBs upto USD 20 Mn – should be minimum of 3 years
• For ECBs over USD 20 Mn and upto USD 750 Mn – should be minimum of 5 years
• For working capital / general corporate purpose ECB – repayment should be after 7 years
What can be the borrowing cost of ECB? (All-in-cost ceilings)
• Rate of Interest
• Other fees
• Expenses in foreign currency
Specific Exclusions:
Commitment fees,
Pre-payment fees, and
Fees payable in Indian Rupees
Withholding Tax paid in Indian Rupees
Average Maturity Period
All-in-cost Ceilings over 6 month LIBOR*
3-5 Years
350 Basis Points
More than 5 Years
500 Basis Points
*For the respective currency of borrowing or applicable benchmark
What are the powers delegated to AD Bank?
• Powers to AD to approve changes in terms and conditions of ECB under both the routes subject to
− Changes in Currency of borrowing
− Change in Bankers
− Change in the name of the borrower
− Changes in recognised lender in case of foreign equity holder and foreign collaborator require prior
− Cancellation of LRN if ECB is not availed
− Change in the permissible end-use of ECB proceeds
− Reduction in amount of ECB
− Changes / modifications in the drawdown / repayment schedule subject to conditions
− Reduction in the all-in-cost of ECB
What are regulations for creation of guarantee / security for ECB?
• Banks, FIs, NBFCs cannot give any guarantee or Letter of credit or undertaking or letter of comfort for
• Security
• Choice of Security is left to the parties with AD Bank giving no-objection
• Charge could relate to immovable properties or shares
• Shares can be shares of borrower company held by promoters as well as in domestic associate
companies of borrower
• In case of invocation of pledge for shares, transfer should be as per extant FDI policy
• In case of enforcement of charge immovable property to be sold only to person resident in India
• Issue of corporate or personal guarantee in favor of overseas lender permissible
• Several conditionalities prescribed for creation of security or giving of guarantee with respect to
period, documentation, transfer, etc.
What are conditions / restrictions on parking of ECB proceeds?
• Parking of ECB proceeds overseas
• ECB proceeds for foreign currency expenditure may be parked overseas or remitted to India
pending utilization
• Proceeds parked overseas permitted to be invested in the following liquid assets outside India
subject to liquidation as and when the funds required in India
• Deposits or Certificates of Deposit with credit rating of at least AA- by specified credit rating
• Treasury bills or monetary instruments with one year maturity
• Deposits with overseas branch of Indian banks
• ECB for Rupee expenditure to be remitted to India immediately and parking of proceeds overseas is not
Can ECB be refinanced, pre-paid, converted?
Refinancing permitted subject to the following conditions:
Fresh ECB is raised at a lower all-in-cost
Outstanding maturity of the original ECB is maintained.
Refinancing of existing ECB by raising a fresh ECB at a higher rate discontinued w.e.f 1 October 2013.
Pre-payment of ECB:
Automatic Route - Up to USD 500 million subject to compliance with minimum average maturity period
as applicable
Approval Route - Prepayments exceeding USD 500 million
Conversion of ECB into Equity subject to conditions:*
Activity of the company is covered under automatic route or FIPB approval is obtained
Foreign equity holding post conversion is within sectoral caps
Share pricing should be as per pricing guidelines issued under FEMA - fair value as on date of
Filing requirements – Form FC-GPR, Form ECB 2 etc.
* Conversion of foreign exchange liability should be at the rate prevailing on the date of agreement
between parties concerned for such conversion
What are the regulations for Trade Credits?
• Trade Credits for credit for imports extended by the overseas supplier (suppliers credit) or bank and
financial institution (buyers credit)
• AD-Bank are authorized to approve Trade Credits and report to RBI
• Trade Credit Amount / Eligibility = USD 20 million per import transactions
• Trade Credit Maturity
− Capital Goods as per foreign trade policy - upto 5 years (earlier only infrastructure sector allowed 5
years and others eligible for 3 years)
− Non-capital goods –upto 1 year
− Credit period to be from the date of shipment
• All-in-cost ceilings – 350 basis points over 6 months LIBOR
• AD Bank can issue Letter of Credit / Guarantee / Letter of Undertaking or Comfort but upto 3 years
Deposit Regulations
What is the framework under FEMA?
Regulations – FEMA 5/2000-RB on Foreign Exchange Management (Deposit) regulations, 2000
amended from time to time
Other Notifications
Circulars issued by RBI from time to time.
What are the types of deposits accepted by AD Banks?
Non-resident (External) Account Scheme (‘NRE account’) from a non-resident Indian
Foreign Currency (Non-Resident) Account Banks Scheme (‘FCNR – B account’) from a non-resident
Non-Resident (Ordinary) Account Scheme (‘NRO account’) from any person resident outside India
What are the key Features of various deposit schemes? (1/2)
FCNR (B) Account
NRE Account
NRO Account
Type of
Term Deposit only
Savings, Current, Recurring,
Fixed Deposit
Savings, Current, Recurring, Fixed
Who can
NRIs - individuals/ entities
of Bangladesh/ Pakistan
nationality / ownership
require prior approval of
NRIs - individuals/ entities of
nationality / ownership
require prior approval of RBI
• Any person resident outside
India (other than a person
resident in Nepal and Bhutan).
• Individuals / entities of Pakistan
nationality / ownership, entities
of Bangladesh ownership and
erstwhile Overseas Corporate
Bodies require prior approval of
the RBI.
Two or more non-resident
individuals - provided all
are persons of Indian
nationality or origin;
Two or more non-resident
individuals - provided all are
persons of Indian nationality
or origin;
May be held jointly with residents
Any freely convertible
Indian Rupees
Indian Rupees
Q & A?
Thank you!
The views in this presentation are personal views of the
Presenter. Further, the information contained is of a general
nature and is not intended to address the circumstances of
any particular individual or entity. Although, the endeavor is to
provide accurate and timely information, there can be no
guarantee that such information is accurate as of the date it is
received or that it will continue to be accurate in the future. No
one should act on such / this information without appropriate
professional advice which is possible only after a thorough
examination of facts / particular situation.

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