Funds raised abroad cannot be used in India unless FEMA rules are followed, says RBI
Updated: Nov 26, 2014 11:55:55am
Mumbai, Nov 26 (KNN) The Reserve Bank of India has made it clear that Indian firms raising funds overseas and routing them to India through certain types of structures that violate Foreign Exchange Management Act (FEMA), 1999 norms are liable for penal action.
In a notification of yesterday, RBI said, “It has come to our notice that some Indian companies are accessing overseas market for debt funds through overseas holding / associate / subsidiary / group companies. It has also been reported that such borrowings are raised at rates exceeding the ceiling applicable in terms of extant FEMA regulations and that the funds so raised are routed to the Indian companies which accounts for sole/major operations of the group.
“Different modalities/structures are resorted to for channelling such funds for Indian operations including investment in rupee bonds floated by the Indian company,” it said.
The apex bank, on a review of the matter in light of the existing regulatory framework, has clarified that “Indian companies or their AD Category – I banks are not allowed to issue any direct or indirect guarantee or create any contingent liability or offer any security in any form for such borrowings by their overseas holding / associate / subsidiary / group companies except for the purposes explicitly permitted in the relevant Regulations.”
Further, funds raised abroad by overseas holding / associate / subsidiary / group companies of Indian companies with support of the Indian companies or their AD Category – I banks as mentioned at (i) above cannot be used in India unless it conforms to the general or specific permission granted under the relevant Regulations, it said.
Significantly, Indian companies or their AD Category – I banks using or establishing structures which contravene the above shall render themselves liable for penal action as prescribed under FEMA, 1999.
Asking banks to inform their constituents and customers, of this, the central bank has said that the directions have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals required, if any, under any other law. (KNN/ES)
In a notification of yesterday, RBI said, “It has come to our notice that some Indian companies are accessing overseas market for debt funds through overseas holding / associate / subsidiary / group companies. It has also been reported that such borrowings are raised at rates exceeding the ceiling applicable in terms of extant FEMA regulations and that the funds so raised are routed to the Indian companies which accounts for sole/major operations of the group.
“Different modalities/structures are resorted to for channelling such funds for Indian operations including investment in rupee bonds floated by the Indian company,” it said.
The apex bank, on a review of the matter in light of the existing regulatory framework, has clarified that “Indian companies or their AD Category – I banks are not allowed to issue any direct or indirect guarantee or create any contingent liability or offer any security in any form for such borrowings by their overseas holding / associate / subsidiary / group companies except for the purposes explicitly permitted in the relevant Regulations.”
Further, funds raised abroad by overseas holding / associate / subsidiary / group companies of Indian companies with support of the Indian companies or their AD Category – I banks as mentioned at (i) above cannot be used in India unless it conforms to the general or specific permission granted under the relevant Regulations, it said.
Significantly, Indian companies or their AD Category – I banks using or establishing structures which contravene the above shall render themselves liable for penal action as prescribed under FEMA, 1999.
Asking banks to inform their constituents and customers, of this, the central bank has said that the directions have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals required, if any, under any other law. (KNN/ES)
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