RBI clarifies rule on ODIs

Confusion arising from existing and new regulations.

The Reserve Bank of India, the central bank, explained that all financial commitments on overseas direct investments (ODIs) made by an Indian party on or before August 14, 2013 will continue to be allowed if these are in compliance with the earlier limit of 400% of net worth under the automatic route.

These investments will not be subject to any unwinding or approval from RBI. RBI also said the new rules that limit ODI financial commitments for an Indian party at 100% of its net worth will not apply to financing out of EEFC account or out of funds raised by way of ADRs or GDRs. RBI has also retained the limit of 400% of the net worth of the Indian party for investments funded by way of eligible external commercial borrowing (ECB) as per the extant ECB guidelines.

An Indian party, however, can make fresh financial commitments in the existing joint venture or wholly-owned subsidiary, including for the purpose of setting up of or acquiring step-down subsidiaries outside India, only up to the revised limit of 100% under the automatic route. Any financial commitment beyond the 100% cap will require prior approval of the Reserve Bank under the approval route for ODI, RBI said.