FLA stands for Foreign Liabilities and Assets. Annual Return on FLA has been notified...
Over the years, the Indian industry has been building up its presence successfully abroad with increasing overseas acquisitions, and thereby the exposure of banks to such financing is rising. As the overseas market is expected to offer better opportunities for growth and is supposed to bring in higher revenues and volumes, the RBI has therefore decided to allow banks in India to extend funded and or non-funded credit facilities to wholly-owned step down subsidiary or subsidiaries of Indian companies (where the holding by the Indian Company is higher than 51%) abroad.
The circular issued by the RBI dated 10 May 2007 have been reviewed and modified. It says that:
The aforementioned modifications will apply to the credit facilities sanctioned after the date of the circular and further to existing facilities as and when they are renewed afterward.
All other terms and conditions specified above in the circular as amended from time to time will remain applicable.
Under the approval route, the Indian party can issue corporate guarantee on behalf of its second generation or subsequent level step down operating subsidiaries, provided the Indian Party indirectly holds 51% or more than 51% stake in the overseas second level step down operating subsidiary for which such a guarantee is proposed to be issued.
No, as on date a guarantee that that has been issued already on behalf of the overseas Joint venture/wholly owned subsidiaries/step down subsidiaries may be allowed to be rolled over under the automatic route without subjecting the rollover to FEMA compliance afresh, provided that only the validity period of the extant guarantee is undergoing change.
Read, Also: Wholly Owned Subsidiary or Subsidiary in India?.
There are no restrictions on entities having Joint ventures / wholly-owned subsidiaries abroad setting up second-generation operating companies (Step down subsidiaries) within the overall limits that are applicable under the automatic route. However, it may be noted that companies wishing to set up step down operating subsidiaries to undertake financial sector activities shall have to comply with the additional requirements for direct investment in the financial services sector.
Where a Joint venture / wholly-owned subsidiary has been established through a Special Purpose Vehicle, all funding to the operating step down subsidiaries should be routed through the Special Purpose Vehicle only. In case of guarantees to be given on behalf of the first level step down operating subsidiary, these can be given directly by the Indian Party (IP) provided such exposures are within the permitted financial commitment of the IP.
No, as per the provisions contained in the notification number FEMA 120/RB-2004 of 7 July 2004, as amended from time to time, which deals with the transfer and issue of any foreign security to the residents do not permit an Indian party to set up a step down subsidiary/ Joint Venture in India nor does the provisions permit or allow an Indian party to acquire a WOS or invest in JV that already has a direct or indirect investment in India under the automatic route. However, it may be noted Indian parties can approach the Reserve Bank for prior approval through their AD banks which shall be considered on a case to case basis depending upon the merits of the case.
While referring queries by the Authorised Dealer banks in the conference of the Authorised dealers on FEMA, one of the questions were raised by the Authorized dealer bank stating whether it is permitted for an Indian Company to acquire an overseas company and that such overseas company has an Indian subsidiary as well. The RBI responded that it was not envisaged under the extant guidelines at the point of time.