Executive Summary:
These regulations, titled the Foreign Exchange Management Overseas Investment Regulations, 2022, issued by the Reserve Bank of India, define the rules for overseas investment. They clarify the permissible financial commitments by Indian entities to foreign entities, including debt, guarantees, and pledges. The regulations also outline reporting requirements, payment methods, and consequences for delays in reporting. These regulations come into force on the date of their publication in the Official Gazette, August 22, 2022.
Key Points / Main Content:
* **Short Title and Commencement:** These regulations are called the Foreign Exchange Management Overseas Investment Regulations, 2022 and came into force on August 22, 2022.
* **Definitions:** Terms used in these regulations are as defined in the Foreign Exchange Management Act, 1999, and the Foreign Exchange Management Overseas Investment Rules, 2022.
* **Financial Commitment by Indian Entity:**
* Indian entities can lend or invest in foreign entities' debt instruments or extend non-fund-based commitments, within specified financial commitment limits, provided they are eligible for Overseas Direct Investment (ODI), have made ODI in the foreign entity, and have acquired control.
* Financial commitments include lending, investing in debt, guarantees, and pledges and are subject to financial commitment limits.
* **Financial Commitment by Way of Debt:**
* Indian entities can lend or invest in foreign entities' debt instruments if backed by a loan agreement with an arm's length interest rate.
* **Financial Commitment by Way of Guarantee:**
* Permissible guarantees include corporate, performance, and bank guarantees.
* Guarantees by group companies count towards their financial commitment limit, with fund-based exposure to the Indian entity deducted from their net worth.
* Guarantees by promoters require the Indian entity to be part of the promoter group.
* Guarantees must not be open-ended.
* Invoked guarantee amounts are considered lending.
* Joint and several guarantees are fully reckoned towards each Indian entity's limit.
* Performance guarantees are reckoned at 50% of the amount.
* Rollover of guarantee is not treated as fresh commitment if the amount does not exceed the original guarantee amount.
* **Financial Commitment by Way of Pledge or Charge:**
* Indian entities with ODI can pledge equity capital of foreign entities or their step-down subsidiaries to AD banks, public financial institutions in India, or overseas lenders for availing facilities.
* They can create charges on assets in India or abroad in favor of lenders for facilities to the foreign entity or its step-down subsidiary.
* The value of the pledge or charge is reckoned towards the financial commitment limit, excluding facilities availed by the Indian entity for itself.
* Overseas lenders must be from permissible jurisdictions.
* Negative pledges or charges for bidding purposes are not reckoned towards the financial commitment limit.
* **Acquisition or Transfer by Way of Deferred Payment:**
* Deferred payment for equity capital acquisition is allowed if foreign securities are transferred upfront and the final consideration complies with pricing guidelines.
* Deferred consideration is treated as a non-fund-based commitment.
* **Mode of Payment:**
* Payments for Overseas Investment can be made through banking channels, from funds held in accordance with the Act, by swap of securities, or by using proceeds from depositary receipts or external commercial borrowings.
* **Obligations of Person Resident in India:**
* Share certificates or relevant documents must be submitted to the AD bank within six months as evidence of investment.
* A Unique Identification Number (UIN) must be obtained from the Reserve Bank before sending outward remittance or acquiring equity capital.
* Transactions must be routed through a designated AD bank for each UIN.
* Dues from the foreign entity must be realized and repatriated within ninety days.
* Remittances can be made for earnest money deposit or bid bond guarantees.
* **Reporting Requirements for Overseas Investment:**
* Reporting must be done through the designated AD bank.
* Financial commitment, disinvestment, and restructuring must be reported within specified timeframes.
* Overseas Portfolio Investment (OPI) or transfer of OPI must be reported within sixty days from the end of the half-year.
* An Annual Performance Report (APR) must be submitted for each foreign entity by December 31st (or the next year's December 31st if the entity's accounting year ends on December 31st).
* An Annual Return on Foreign Liabilities and Assets must be submitted to the Reserve Bank of India.
* **Delay in Reporting:**
* Late submissions and filings can be made with a Late Submission Fee within a maximum period of three years from the due date, as directed by the Reserve Bank.
* **Restriction on Further Financial Commitment or Transfer:**
* Further financial commitment or transfer of investment is restricted until reporting delays are regularized.
Impact Analysis:
* **Indian Entities Making Overseas Investments:**
* Impact: These regulations directly govern the permissible financial commitments, reporting requirements, and payment methods for their overseas investments. They need to ensure compliance with the new rules regarding debt, guarantees, pledges, and deferred payments.
* Action Required: Review existing and planned overseas investments to ensure they align with the new regulations. Update internal processes for reporting and payment methods.
* **Designated AD Banks:**
* Impact: They are responsible for facilitating and reporting overseas investment transactions on behalf of Indian entities. They must ensure that the transactions comply with the new regulations and accurately report the required information to the Reserve Bank of India.
* Action Required: Update internal systems and processes to incorporate the new reporting requirements. Train staff on the updated regulations and compliance procedures.
* **Resident Individuals Making Overseas Portfolio Investments:**
* Impact: The regulations specify reporting requirements for Overseas Portfolio Investments (OPI) and transfers of OPI, especially regarding Employee Stock Ownership Plans or Employee Benefits Schemes.
* Action Required: Adhere to the reporting timelines and formats as prescribed by the Reserve Bank of India. Ensure compliance with the regulations for OPI acquired through employee schemes.
* **Reserve Bank of India:**
* Impact: Responsible for enforcing these regulations and monitoring overseas investments made by Indian entities.
* Action Required: Implement mechanisms for monitoring compliance, collecting reports, and levying penalties for non-compliance. Provide guidance and clarifications on the interpretation and implementation of the regulations.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the foreign exchange market and overseas investments.
Foreign Exchange Management Act, 1999: An act of the Parliament of India to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.
Foreign Exchange Management Overseas Investment Regulations, 2022: Regulations issued by the Reserve Bank of India governing overseas investments by Indian entities.
Foreign Exchange Management Overseas Investment Rules, 2022: Rules related to overseas investment.
Overseas Direct Investment ODI: Investment by an Indian entity in a foreign entity.
Securities and Exchange Board of India: The regulator of the securities market in India.
American Depository Receipts: A certificate representing ownership of foreign stock traded on U.S. exchanges
Global Depositary Receipts: A bank certificate issued in multiple countries for shares of a foreign company.
RESERVE BANK OF INDIA
(FOREIGN EXCHANGE DEPARTMENT)
CENTRAL OFFICE
MUMBAI 400 001
No. FEMA 400/2022-RB August 22, 2022
Foreign Exchange Management (Overseas Investment) Regulations, 2022
In exercise of the powers conferred by sub-section (1) and clause (a) of sub-section (2) of section 47 of
the Foreign Exchange Management Act, 1999 (42 of 1999), the Reserve Bank hereby makes the
following regulations, namely:–
1. Short title and commencement.– (1) These regulations may be called the Foreign Exchange
Management (Overseas Investment) Regulations, 2022.
(2) They shall come into force on the date of their publication in the Official Gazette.
2. Definitions.– (1) In these regulations, unless the context otherwise requires,–
(a) “Act” means the Foreign Exchange Management Act, 1999 (42 of 1999);
(b) “debt instruments” shall have the same meaning as assigned to it in the Foreign Exchange
Management (Overseas Investment) Rules, 2022;
(2) The words and expressions used but not defined in these regulations shall have the meanings
respectively assigned to them in the Act or the Foreign Exchange Management (Overseas Investment)
Rules, 2022.
3. Financial commitment by Indian entity by modes other than equity capital,– (1) The Indian entity
may lend or invest in any debt instrument issued by a foreign entity or extend non-fund based
commitment to or on behalf of a foreign entity including overseas step down subsidiaries of such Indian
entity subject to the following conditions within the financial commitment limit as prescribed in the Foreign
Exchange Management (Overseas Investment) Rules, 2022:–
(i) the Indian entity is eligible to make Overseas Direct Investment (ODI);
(ii) the Indian entity has made ODI in the foreign entity;
(iii) the Indian entity has acquired control in such foreign entity at the time of making such
financial commitment.
(2) The financial commitments under regulations 4, 5, 6 and 7 shall be reckoned towards the financial
commitment limit referred to in sub-regulation (1).
14. Financial commitment by Indian entity by way of debt.– An Indian entity may lend or invest in any
debt instruments issued by a foreign entity subject to the condition that such loans are duly backed by a
loan agreement where the rate of interest shall be charged on an arm’s length basis.
Explanation.–– For the purpose of this regulation, the expression “arm’s length” means a
transaction between two related parties that is conducted as if they were unrelated, so that there is no
conflict of interest.
5. Financial commitment by way of guarantee.– (1) The following guarantees may be issued to or on
behalf of the foreign entity or any of its step down subsidiary in which the Indian entity has acquired
control through the foreign entity, namely:–
(i) corporate or performance guarantee by such Indian entity;
(ii) corporate or performance guarantee by a group company of such Indian entity in
India, being a holding company (which holds at least 51 per cent. stake in the Indian
entity) or a subsidiary company (in which the Indian entity holds at least 51 per cent.
stake) or a promoter group company, which is a body corporate;
(iii) personal guarantee by the resident individual promoter of such an Indian entity;
(iv) bank guarantee, which is backed by a counter-guarantee or collateral by the Indian
entity or its group company as above, and issued, by a bank in India.
(2) Where the guarantee is extended by a group company, it shall be counted towards the utilisation of its
financial commitment limit independently and in case of a resident individual promoter, the same shall be
counted towards the financial commitment limit of the Indian entity:
Provided that where the commitment under sub-regulation (1) is extended by a group company,
any fund-based exposure to or from the Indian entity shall be deducted from the net worth of such group
company for computing its financial commitment limit:
Provided further that where the guarantee under sub-regulation (1) is extended by a promoter,
which is a body corporate or an individual, the Indian entity shall be a part of the promoter group.
Explanation.– For the purposes of this sub-regulation, the expression “promoter group” shall have the
meaning as assigned to it in the Securities and Exchange Board of India (Issue of Capital and Disclosure
Requirements) Regulations 2018.
(3) No guarantee shall be open-ended.
(4) The guarantee, to the extent of the amount invoked, shall cease to be a part of the non-fund based
commitment but be considered as lending.
(5) Where a guarantee has been extended jointly and severally by two or more Indian entities, 100 per
cent. of the amount of such guarantee shall be reckoned towards the individual limits of each of such
Indian entities.
(6) In case of performance guarantee, 50 per cent. of the amount of guarantee shall be reckoned
towards the financial commitment limit.
2(7) Roll-over of guarantee shall not be treated as fresh financial commitment where the amount on
account of such roll-over does not exceed the amount of original guarantee.
6. Financial commitment by way of pledge or charge,– An Indian entity, which has made ODI by way
of investment in equity capital in a foreign entity, may––
(a) pledge the equity capital of the foreign entity in which it has made ODI or of its step down
subsidiary outside India, held directly by the Indian entity in a foreign entity and indirectly in step
down subsidiary, in favour of an AD bank or a public financial institution in India or an overseas
lender, for availing fund based or non-fund based facilities for itself or for any foreign entity in
which it has made ODI or its step down subsidiaries outside India or in favour of a debenture
trustee registered with SEBI for availing fund based facilities for itself;
(b) create charge by way of mortgage, pledge, hypothecation or any other identical mode on–
(i) its assets in India, including the assets of its group company or associate company,
promoter or director, in favour of an AD bank or a public financial institution in India or an
overseas lender as security for availing of the fund based or non-fund based facility or both,
for any foreign entity in which it has made ODI or for its step down subsidiary outside India;
or
(ii) the assets outside India of the foreign entity in which it has made ODI or of its step down
subsidiary outside India in favour of an AD bank in India or a public financial institution in
India as security for availing of the fund based or non-fund based facility or both, for itself or
any foreign entity in which it has made ODI or for its step down subsidiary outside India or in
favour of a debenture trustee registered with SEBI in India for availing fund based facilities
for itself:
Provided that–
(i) the value of the pledge or charge or the amount of the facility, whichever is less, shall be
reckoned towards the financial commitment limit in force at the time of such pledge or
charge provided such facility has not already been reckoned towards such limit and
excluding cases where the facility has been availed by the Indian entity for itself;
(ii) overseas lender in whose favour there is such a pledge or charge shall not be from any
country or jurisdiction in which financial commitment is not permissible under the Foreign
Exchange Management (Overseas Investment) Rules, 2022;
(iii) the creation or enforcement of such pledge or charge shall be in accordance with the
provisions of the Act or rules or regulations made or directions issued thereunder.
Explanation.– For the purposes of this regulation–
(i) the expression “public financial institution” shall have the same meaning as assigned to it
under clause (72) of section 2 of the Companies Act, 2013 (18 of 2013);
3(ii) the “negative pledge” or “negative charge” created by an Indian entity or a bid bond guarantee
obtained in accordance with these regulations for participation in a bidding or tender procedure
for the acquisition of a foreign entity shall not be reckoned towards the financial commitment limit
referred to in sub-regulation (1) of regulation 3.
7. Acquisition or transfer by way of deferred payment.– (1) Where a person resident in India
acquires equity capital by way of subscription to an issue or by way of purchase from a person resident
outside India or where a person resident outside India acquires equity capital by way of purchase from a
person resident in India, and where such equity capital is reckoned as ODI, the payment of amount of
consideration for the equity capital acquired may be deferred for such definite period from the date of the
agreement as provided in such agreement subject to the following terms and conditions, namely:–
(i) the foreign securities equivalent to the amount of total consideration shall be transferred or
issued, as the case may be, upfront by the seller to the buyer;
(ii) the full consideration finally paid shall be compliant with the applicable pricing guidelines:
Provided that the deferred part of the consideration in case of acquisition of equity capital of a
foreign entity by a person resident in India shall be treated as non-fund based commitment.
(2) The buyer may be indemnified by the seller up to such amount and be subject to such terms and
conditions as may be mutually agreed upon and laid down in the agreement:
Provided that such agreement is in compliance with the provisions of the Act and the rules and
regulations made thereunder.
8. Mode of payment. – A person resident in India making Overseas Investment may make payment –
(i) by remittance made through banking channels;
(ii) from funds held in an account maintained in accordance with the provisions of the Act;
(iii) by swap of securities;
(iv) by using the proceeds of American Depository Receipts or Global Depositary Receipts or stock-
swap of such receipts or external commercial borrowings raised in accordance with the provisions
of the Act and the rules and regulations made thereunder for making ODI or financial commitment
by way of debt by an Indian entity.
9. Obligations of person resident in India.– (1) A person resident in India acquiring equity capital in a
foreign entity, which is reckoned as ODI, shall submit to the AD bank share certificates or any other
relevant documents as per the applicable laws of the host country or the host jurisdiction, as the case
may be, as an evidence of such investment in the foreign entity within six months from the date of
effecting remittance or the date on which the dues to such person are capitalised or the date on which the
amount due was allowed to be capitalised, as the case may be.
4(2) A person resident in India, through its designated AD bank, shall obtain a Unique Identification
Number or “UIN” from the Reserve Bank for the foreign entity in which the ODI is intended to be made
before sending outward remittance or acquisition of equity capital in a foreign entity, whichever is earlier.
(3) A person resident in India making ODI shall designate an AD bank and route all transactions relating
to a particular UIN through such AD:
Provided that where more than one person resident in India makes financial commitment in the
same foreign entity, all such persons shall route all transactions relating to that UIN through the AD bank
designated for that UIN.
(4) A person resident in India having ODI in a foreign entity, wherever applicable, shall realise and
repatriate to India, all dues receivable from the foreign entity with respect to investment in such foreign
entity, the amount of consideration received on account of transfer or disinvestment of such ODI and the
net realisable value of the assets on account of the liquidation of the foreign entity as per the laws of the
host country or the host jurisdiction, as the case may be, within ninety days from the date when such
receivables fall due or the date of such transfer or disinvestment or the date of the actual distribution of
assets made by the official liquidator.
(5) A person resident in India who is eligible to make ODI may make remittance towards earnest money
deposit or obtain a bid bond guarantee from an AD bank for participation in bidding or tender procedure
for the acquisition of a foreign entity:
Provided that in case of an open-ended bid bond guarantee, it shall be converted into a close-
ended guarantee not later than three months from the date of award of the contract.
10. Reporting requirements for Overseas Investment.– (1) Unless otherwise provided in these
regulations, all reporting by a person resident in India, as specified, shall be made through the designated
AD bank in the manner provided in this regulation and in the format provided by the Reserve Bank.
(2) A person resident in India who has made ODI or making financial commitment or undertaking
disinvestment in a foreign entity shall report the following, namely:–
(a) financial commitment, whether it is reckoned towards the financial commitment limit or not, at
the time of sending outward remittance or making a financial commitment, whichever is
earlier;
(b) disinvestment within thirty days of receipt of disinvestment proceeds;
(c) restructuring within thirty days from the date of such restructuring.
(3) A person resident in India other than a resident individual making any Overseas Portfolio Investment
(OPI) or transferring such OPI by way of sale shall report such investment or transfer of investment within
sixty days from the end of the half-year in which such investment or transfer is made as of September or
March-end:
Provided that in case of OPI by way of acquisition of shares or interest under Employee Stock
Ownership Plan or Employee Benefits Scheme, the reporting shall be done by the office in India or
5branch of an overseas entity or a subsidiary in India of an overseas entity or the Indian entity in which the
overseas entity has direct or indirect equity holding where the resident individual is an employee or
director.
(4) A person resident in India acquiring equity capital in a foreign entity which is reckoned as ODI, shall
submit an Annual Performance Report (APR) with respect to each foreign entity every year by 31st
December and where the accounting year of such foreign entity ends on 31st December, the APR shall be
submitted by 31st December of the next year:
Provided that no such reporting shall be required where–
(i) a person resident in India is holding less than 10 per cent. of the equity capital
without control in the foreign entity and there is no other financial commitment other
than by way of equity capital; or
(ii) a foreign entity is under liquidation.
Explanation.– For the purposes of this sub-regulation–
(a) the APR shall be based on the audited financial statements of the foreign entity:
Provided that where the person resident in India does not have control in the foreign entity and
the laws of the host country or host jurisdiction, as the case may be, do not provide for mandatory
auditing of the books of accounts, the APR may be submitted based on unaudited financial statements
certified as such by the statutory auditor of the Indian entity or by a chartered accountant where the
statutory audit is not applicable;
(b) in case more than one person resident in India have made ODI in the same foreign entity, the
person holding the highest stake in the foreign entity shall be required to submit APR and in case of
holdings being equal, APR may be filed jointly by such persons;
(c) the person resident in India shall report the details regarding acquisition or setting up or winding up
or transfer of a step down subsidiary or alteration in the shareholding pattern in the foreign entity during
the reporting year in the APR.
(5) An Indian entity which has made ODI shall submit an Annual Return on Foreign Liabilities and Assets
within such time as may be decided by the Reserve Bank from time to time, to the Department of
Statistics and Information Management, Reserve Bank of India.
11. Delay in reporting.– (1) A person resident in India who does not submit the evidence of investment
within the time specified under sub-regulation (1) of regulation 9 or does not make any filing within the
time specified under regulation 10, may make such submission or filing, as the case may be, along with
Late Submission Fee within such period as may be advised, and at the rates and in the manner as may
be directed by the Reserve Bank, from time to time:
Provided that such facility can be availed within a maximum period of three years from the due
date of such submission or filing, as the case may be.
6(2) A person resident in India responsible for submitting the evidence or any filing relating to overseas
investment in accordance with the Act or regulations made thereunder before the date of publication of
these regulations in the Official Gazette and who has not made or does not make such submission or
filing within the time specified thereunder, may make such submission or filing along with Late
Submission Fee or make payment of Late Submission Fee where such submission or filing has been
done, as the case may be, within such period as may be advised, and at the rates and in the manner as
may be directed by the Reserve Bank, from time to time.
Provided that such facility can be availed within a maximum period of three years from the date of
publication of these regulations in the Official Gazette.
12. Restriction on further financial commitment or transfer.– A person resident in India who has
made a financial commitment in a foreign entity in accordance with the Act or rules or regulations made
thereunder, shall not make any further financial commitment, whether fund-based or non-fund-based,
directly or indirectly, towards such foreign entity or transfer such investment till any delay in reporting is
regularised.
(Ajay Kumar Misra)
Chief General Manager-in-Charge
Published in the Official Gazette of Government of India –
Extraordinary – Part-III, Section 4, vide Gazette ID CG-
MH-E-22082022-238242 dated August 22, 2022
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