New ODI regulations: Govt allows investment in financial services abroad

Source: The post is based on the article “New ODI regulations: Govt allows investment in financial services abroad” published in Business Standard on 24th August 2022.

What is the News?

The Finance Ministry has released the Foreign Exchange Management (Overseas Investment) Rules, 2022. The rules are aimed at easing rules for domestic firms that want to invest abroad. 

What are the key provisions of the New ODI regulations?

Annual Performance Report: Any resident in India acquiring equity capital in a foreign entity or overseas direct investment(ODI) will have to submit an Annual Performance Report (APR) for each foreign entity, every year by December 31. 

– No such reporting shall be required where a person resident in India is holding less than 10% of the equity capital without control in the foreign entity and there is no other financial commitment other than equity capital or a foreign entity is under liquidation.

Overseas Direct Investment(ODI) by Resident Individual: Any resident individual can make an ODI by way of investment in equity capital or overseas portfolio investment(OPI) subject to the overall ceiling under the Liberalized Remittance Scheme (LRS) of the Reserve Bank. 

– Currently, the LRS permits $2,50,000 in outward investment by an individual in a year.

Investment in Financial Firms abroad: Indian companies not in financial services can now directly invest in financial-services firms abroad, such as brokerages, asset management funds, and credit cards under the automatic route. Banks and insurance firms have been kept out of this. Earlier, such investment was prohibited.

Strategic Sector: The new rules introduced the concept of “strategic sector”, which gives the government the powers to permit overseas investment in excess of the limits prescribed under the rules.

– The strategic sector shall include energy, natural resources and such other sectors as may be decided by the government from time to time in view of the evolving business requirements.

Prohibitions for overseas investment: Any Indian resident who has been classified as a wilful defaulter or is under investigation by the CBI, the ED or the Serious Frauds Investigation Office (SFIO) will have to obtain a no-objection certificate (NOC) from his or her bank, regulatory body or investigative agency before making any overseas financial commitment or disinvestment of overseas assets.

– If the lenders, the concerned regulatory body or investigative agency fail to furnish the NOC within 60 days of receiving an application, it may be presumed that they have no objection to the proposed transaction.