RBI TIGHTEN THE SCREWS ON IMPORTS, INVESTMENTS AND MONEY TRANSFERS ABROAD.

 OUTFLOW RESTRICTED:-

(i) Reduced the limit for Overseas Direct Investment (ODI) under automatic route for all fresh ODI transactions, from 400% of the net worth of an Indian Party to 100% of its net worth. This reduced limit would also apply to remittances made under the ODI scheme by Indian Companies for setting up unincorporated entities outside India in the energy and natural resources sectors. This reduction in limit, however, would not apply to ODI by Navratna PSUs, ONGC Videsh Limited and Oil India in overseas unincorporated entities and incorporated entities, in the oil sector.

(ii) Reduced the limit for remittances made by Resident Individuals, under the Liberalised Remittance Scheme (LRS Scheme), from USD 200,000 to USD 75,000 per financial year. Resident Individuals have, however, now been allowed to set up Joint Venture (JV)/Wholly Owned Subsidiary (WOS) outside India under the ODI route within the revised LRS limit.

(iii) While current restrictions on the use of LRS for prohibited transactions, such as, margin trading and lottery would continue, use of LRS for acquisition of immovable property outside India directly or indirectly will, henceforth, not be allowed.

The present set of measures is aimed at moderating outflows. However, any genuine requirement beyond these limits will continue to be considered by RBI under the approval route.

RBI/2013-14/181
A. P. (DIR Series) Circular No.24

August 14, 2013

To

All Category-I Authorised Dealer Banks

Madam / Sir,

Liberalised Remittance Scheme for Resident Individuals- Reduction of limit from USD 200,000 to USD 75,000

Attention of Authorised Dealer Category – I (AD Category – I) banks is invited to the guidelines regarding the Liberalised Remittance Scheme (LRS) for Resident Individuals (the Scheme).

2. On a review of the scheme, it has now been decided to reduce the existing limit of USD 200,000 per financial year to USD 75,000 per financial year (April – March) with immediate effect. Accordingly, AD Category – I banks may now allow remittance up to USD 75,000 per financial year, under the scheme, for any permitted current or capital account transaction or a combination of both. Further, the following changes / clarifications in regard to the remittances under LRS will come into effect immediately :

(i). The scheme should no longer be used for acquisition of immovable property, directly or indirectly, outside India. Therefore, AD Category-I banks may henceforth not allow any remittances under the LRS Scheme for acquisition of immovable property outside India.

(ii). The scheme should not be used for making remittances for any prohibited or illegal activities such as margin trading, lottery etc., as hitherto.

(iii). Resident individuals have now been allowed to set up Joint Ventures (JV) / Wholly Owned Subsidiaries (WOS) outside India for bonafide business activities outside India within the limit of USD 75,000 with effect from August 5, 2013 and subject to the terms and conditions stipulated in Notification No.FEMA 263/RB-2013 dated August 5, 2013.

3. Further, the limit for gift in Rupees by Resident Individuals to NRI close relatives and loans in Rupees by resident individuals to NRI close relatives in terms of A.P. (DIR Series) Circular No.17 and 18 both dated September 16, 2011 shall accordingly stand modified to USD 75,000 per financial year.

4. All other terms and conditions mentioned in A. P. (DIR Series) Circular No. 64 dated February 4, 2004, A. P. (DIR Series) Circular No. 24 dated December 20, 2006, A. P. (DIR Series) Circular No. 51 dated May 8, 2007, A.P. (DIR Series) Circular No.36 dated April 4, 2008, A.P. (DIR Series) Circular No.17 and 18 both dated September 16, 2011 and A.P.(DIR Series) Circular No. 106 dated May 23, 2013 shall remain unchanged.

5. Necessary amendments to the Notification No. FEMA.1/2000-RB dated May 3, 2000, [Foreign Exchange Management (Permissible Capital Account Transactions) Regulations 2000] are being notified separately.

6. AD – Category I banks may bring the contents of this circular to the notice of their constituents and customers concerned.

7. The directions contained in this Circular have been issued under Section 10 (4) and 11 (1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.

Yours faithfully,

(C.D. Srinivasan)
Chief General Manager.

Reduction of limit for Overseas Direct Investment to 100 percent of net worth the Indian Party

FEMA-

RBI/2013-14/180
A. P. (DIR Series) Circular No.23

August  14, 2013

To

All Category-I Authorised Dealer Banks

Madam / Sir,

Overseas Direct Investments

Attention of Authorised Dealer Category – I (AD Category – I) banks is invited to the Notification No. FEMA.120/RB-2004 dated July 7, 2004, [Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004], as amended from time to time (the Notification) and the A.P. (DIR Series) Circular No. 11 dated September 26, 2007; A.P. (DIR Series) Circular No. 48 dated June 3, 2008 and A.P. (DIR Series) Circular No. 99 dated April 23, 2013. On a review, it has been decided to rationalize the regulations governing the overseas direct investments with immediate effect as under:

2. Reduction of limit for Overseas Direct Investment

In terms of the extant provisions under the Foreign Exchange Management Act, 1999 (FEMA, 1999) on overseas direct investments, the total overseas direct investment (ODI) of an Indian Party in all its Joint Ventures (JVs) and / or Wholly Owned Subsidiaries (WOSs) abroad engaged in any bonafide business activity should not exceed 400 per cent of the net worth of the Indian Party as on the date of the last audited balance sheet under the Automatic Route.

It has now been decided:

a.    To reduce the existing limit of 400 per cent of the net worth of the Indian Party to 100 per cent of its net worth under the Automatic Route. Accordingly, AD Category – I banks may allow overseas direct investments under the Automatic Route up to 100 per cent of the net worth of the Indian party, as on the date of the last audited balance sheet;

b.   To reduce the existing limit of 400 per cent of the net worth of the Indian company, investing in the overseas unincorporated entities in the energy and natural resources sectors, under the automatic route, to 100 per cent of the net worth of the Indian company investing in the overseas unincorporated entities in the energy and natural resources sectors, as on the date of last audited balance sheet; and

c.    Any ODI in excess of 100% of the net worth shall be considered under the Approval Route by the Reserve Bank of India.

3. In respect of the Navaratna Public Sector Undertakings (PSUs), ONGC Videsh Limited (OVL) and Oil India Ltd (OIL), the extant provision for investing in overseas unincorporated entities and the overseas incorporated entities in the oil sector (i.e., for exploration and drilling for oil and natural gas, etc.), which are duly approved by the Government of India, without any limits under the automatic route, would however continue as hitherto.

4. The above provisions shall come into effect with immediate effect and would apply to all fresh Overseas Direct Investment proposals on a prospective basis but would not apply to the existing JV/WOS set up under the extant regulations.

5. AD Category – I banks may bring the contents of this circular to the notice of their constituents and customers concerned.

6. Necessary amendments to the Notification No. FEMA.120/2004-RB dated July 7, 2004, [Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations 2004] are being notified separately.

7. The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.

Yours faithfully,

(C.D. Srinivasan)
Chief General Manager.

Restrictions and limit for the Import of Gold by Nominated Banks /Agencies/Entities

RBI/2013-14/187
A.P. (DIR Series) Circular No. 25

August 14, 2013

To,

All Category – I Authorised Dealer Banks

All Scheduled Commercial Banks which are Authorised Dealers (ADs) in
Foreign Exchange/ All Agencies nominated for import of gold

Madam / Sir,

Import of Gold by Nominated Banks /Agencies/Entities

Attention of Authorised Persons is drawn to the Reserve Bank’s A.P. (DIR Series) Circular No. 15 dated July 22, 2013 on the captioned subject. As per these instructions, certain restrictions were imposed on the import of various forms of gold by nominated banks/nominated agencies/ premier or star trading houses/SEZ units/EoUs which have been permitted to import gold for use in the domestic sector.

2. Government of India and the Reserve Bank of India have been receiving several requests for clarifications on the  operational aspects of the scheme of imports put in place in terms of the  above circular. There have also been representations to change certain aspects of the scheme. Taking into account all these representations and in consultation with the Government of India, it has been decided to issue the following clarifications/modifications in supersession of all the earlier instructions:

a.    Import of gold in the form of coins and medallions is now prohibited.

b.   It shall be incumbent on all nominated banks/nominated agencies and other entities to ensure that at least one fifth, i.e., 20%, of every lot of import of gold imported to the country is exclusively made available for the purpose of exports and the balance for domestic use. A working example of the operations of the 20/80 scheme envisaged in terms of the present instructions is given in the Annex. This shall be monitored by customs authorities, and will be implemented port-wise only.

c.    Further, nominated banks/ nominated agencies and other entities shall make available gold for domestic use only to the entities engaged in jewellery business/bullion dealers and to banks authorised to administer the Gold Deposit Scheme against full upfront payment. In other words, supply of gold in any form to the domestic users other than against full payment upfront shall not be permitted.

d.   The nominated banks/agencies/refineries and other entities shall ensure that there is no front loading of imports, particularly in the first and second lots of imports. Such imports shall be linked to normal quantities of gold supplied to the exporters by the nominated banks/agencies and shall not exceed the highest quantity supplied during any one year out  of last three years. The quantity thus arrived at, however, will not be imported in one or two lots only. As a thumb rule, imports of more than maximum of  two months of requirements of the exporters in a lot would be considered unusual. Illustratively, if the gold supplied to exporters by a bank during the last three years is say, 30 tonnes, 40 tonnes and 60 tonnes respectively, imports in terms of this circular shall be based on highest of three i.e. 60 tonnes. Further, import of 50 tonnes( two months export of 10 tonnes for exports and 4 times the amount for domestic use, totalling 50 tonnes) will be considered unusual. In case of nominated banks not having a previous record of having supplied gold to the exporters they would need to seek prior approval from RBI before placing orders for import of gold for the first lot under the 20/80 scheme.

e.    The 20/80 principle would also apply for the henceforth import of gold in any form/purity including gold dore, whereby 20 per cent of the gold imported shall be provided to the exporters. This will be administered and monitored at the refinery level for each consignment at the time of such imports. This will also be monitored by the customs authorities. The refinery shall make available for domestic use only to the entities engaged in jewellery business/bullion dealers and to the banks authorised to administer the Gold Deposit Scheme against full upfront payment and sale of gold against any other form of payment shall not be permitted. Further, the import of gold dore is permitted only against a licence issued by DGFT.

f.     Any authorisation such as Advance Authorisation/Duty Free Import Authorization (DFIA) is to be utilised for import of  gold meant for export purposes only and no diversion for domestic use shall be permitted.

3. Entities/units in the SEZ and EoUs, Premier and Star trading houses are permitted to import gold exclusively for the purpose of exports only.

4. AD Category I banks are advised to strictly ensure that foreign exchange transactions effected by / for their constituents are compliant with the above instructions. Head Offices of nominated agencies / International Banking Divisions of banks would be responsible for monitoring operations of the revised scheme taking into account transactions put through different centres. In respect of gold released for  the purpose of exports, AD Category I banks will also put in place a special mechanism to monitor realization of  export proceeds  as per the extant regulations and any contraventions/ unusual developments in this regard should be reported forthwith to the concerned Regional Office of the Reserve Bank of India.

5. Government of India will be issuing separate instructions, if any, to the customs authorities/DGFT to operationalise and monitor the above requirements for import of gold.

6. The above instructions will come into force with immediate effect. Authorised dealers may please bring the contents of this circular to the notice of their constituents and customers concerned.

7. The directions contained in this circular have been issued under Section 10(4) and Section 11(1) of the Foreign Exchange Management Act (FEMA), 1999 (42 of 1999), and are without prejudice to permissions / approvals, if any, required under any other law.

Yours faithfully

(Rudra Narayan Kar)
Chief General Manager-in-Charge.