RBI Amends Regulatory Framework For Foreign Investments In Startups

In a recent development, The Reserve Bank of India (RBI) has allowed foreign venture capital investors (FVCIs) to invest in Indian startups without any prior permission from it.

Foreign venture capital investors that have registered themselves with the SEBI can also invest in unlisted firms belonging to various sectors including biotechnology, nanotechnology, and dairy, without RBI’s permission.

As per an official statement from RBI, “They will not require any approval from Reserve Bank and “can invest in…equity or equity-linked instrument or debt instrument issued by an Indian ‘start-up’ irrespective of the sector in which the startup is engaged.”

The RBI further stated that regulatory framework regarding this type of investment has been reviewed and relaxed with an aim to “further liberalise and rationalise the investment regime for foreign venture capital investors and to give a fillip to foreign investment in the startups.”

According to the terms of the amendment, “foreign venture capital investors will not require any approval from RBI and can invest in equity or equity-linked instrument or debt instrument issued by an Indian company in certain sectors whose shares are not listed.”

The sectors approved under the amended regulations are biotechnology, IT, hardware and software development, nanotechnology, seed research and development, chemical research, pharmaceutical sector, dairy, poultry, biofuels, hotels, convention centres, and infrastructure.

Foreign venture capital investors will also be permitted to open and operate a foreign currency account and/or a rupee account to facilitate transactions. The transfer of any security held by the foreign VC to any individual in India or abroad will be processed without any restrictions from the RBI.

In the past few months, the RBI has initiated a slew of services to smoothen investments in the country and to support the startup and digital ecosystem of the country. This includes approval to buy mutual funds via e-wallets; Paytm, PayU India, Oxigen to function as a consumer bill payment platform; guidelines to regulate P2P lending platforms; favouring towards easier exit policy for startups etc.

In August 2016, the RBI also launched a website called Sachet, to further its efforts to curb illegal and unauthorised pooling of funds by unscrupulous firms. Earlier this month, RBI drafted a new regulatory framework to manage investments in foreign technology funds by Indian parties that utilise the money in startups abroad.

The development was reported by Mint.