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RBI New Regulations for Investments in Foreign Startups

RBI

The Reserve Bank of India (RBI) has come up with a new proposal for investing in overseas startups by the means of an overseas technology fund hence instituted a section on its website for annotation on the guideline. As per the official statement, such investments do not meet the eligibility criteria set by the Indian government for making the foreign direct investment under the automatic route at the first instance.

Adding further to it RBI said, the Regulation 6 and 7 of the Foreign Exchange Management Act (FEMA) notification, dated July 7, 2014, underlining the difficulties in the framework, which can be brought under control using regulation 9 of the same guideline.

RBI has also put a substantial list of conditions on the table under which only the listed and profitable Indian parties will be considered for making such investments. That means, they should have a minimum net worth of INR 500 Crore and should be a listed firm on the stock exchange. Moreover, the company should not be a part of the RBI’s Caution List as well as the investors should also disclose profit details of the past three years.

Apart from this RBI has also come up with conditions for one time approval concerning the aggregate or cumulative investments in the overseas fund that should not be more than 400 percent of the net worth of the Indian firms or the US $500 million. What’s more is that it is mandatory to make all the investments in the overseas technology fund from internal accruals or associated companies in the country instead of having the banking system.

The money invested in startups overseas will have to be aligned to the lines of core business activity of the company, said by RBI. Later on, the proper reporting of such investment should fall along in their annual reports. Read more Startup Related News.

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