RBI Drafts New Regulatory Framework; Looks To Manage Investments In Technology Funds Overseas

The Reserve Bank of India (RBI) has reportedly drafted a new regulatory framework to manage investments in foreign technology funds by Indian parties that utilise the money in startups abroad.

According to an official statement, the RBI stated that such investments are currently not eligible under the norms set by the Government for facilitating overseas direct investments via the automatic route.

It also elaborated on the fact that according to Regulation 6 and 7 of a July 2004 Foreign Exchange Management Act (FEMA) notification highlighting the gaps in the framework, which can be overcome using Regulation 9 of the same notification.

The RBI has also put in place an extensive list of conditions that are mandatory for an Indian party to be followed, who are interested to invest in the fund.

In order to be eligible, the party should have a minimum net worth of $75 Mn (INR 500 Cr). It should also have a total overseas investment under 400% of its net worth.

It also cannot be a part of the ‘caution list’ the RBI will prepare of companies not meeting the required criteria and the party should also show profitable accounts over the past three years.

In addition to the above-stated regulations, the RBI has also mandated a one-time approval regarding cumulative investment overseas. According to a Mint report, it should not exceed 400% of the total worth of the Indian party or $500 Mn, whichever is less.

As per an official statement, the RBI also stated that the proposed amount to be invested in the technology fund overseas should be a part of the associated companies of the Indian party and cannot be borrowed from a bank.

The money invested should also fall along the lines of core business sector of the investing party. It also stated that proper documentation and reporting should take place before the investment is made.

In the past few months, a lot of initiatives have been taken by the RBI 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 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.

This development was reported by Mint.