Registration mandatory for investment overseas

Source: The Hindu Business Line, May 14, 2012

Mumbai: Core investment companies (CICs) making overseas investment in the financial sector will require a Certificate of Registration, said the Reserve Bank of India.

Currently, CICs with an asset size of less than Rs 100 crore are exempt from registration with the RBI. Investment in the non-financial sector by such exempted CIC, however, will not require CoR.

CICs with an asset size of Rs 100 crore or more are considered as systemically important core investment companies and require to a CoR from the RBI.

CICs are purely investment companies that invest in shares and securities of subsidiary companies and joint ventures. They also give loans to subsidiaries and joint ventures. Sometimes, promoters hold stakes in various companies through such investment vehicles.

The RBI, in its ‘draft directions’ for overseas investment by CICs, said post overseas investment, a CIC should maintain the requirement of adjusted net worth of not less than 30 per cent of its aggregate risk weighted assets.

The level of net non-performing assets of the CIC should not be more than one per cent of net advances.

A CIC investing overseas should be earning profit continuously for the last three years. The aggregate overseas investment should not exceed 400 per cent of the owned funds of the CIC.

The aggregate overseas investment in the financial sector should not exceed 200 per cent of its owned funds.

A CIC should have only fund-based overseas investment in financial/ non-financial sector. CICs should ensure that investment made abroad do not result in creation of complex structures. Further, all subsidiaries and JVs set up abroad must be operating entities.

As CICs are non-operating entities, they will not, in the normal course, be allowed to open branches overseas.

A subsidiary being established abroad should not be a shell company (a company which does not have significant assets or operations). However, companies undertaking activities such as financial consultancy and advisory services will not be considered as shell companies as they will have significant operations.

The RBI said the subsidiary being established abroad by the CIC should not be used as a vehicle for raising resources for creating assets in India for the Indian operations.

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One Response to “Registration mandatory for investment overseas”

  1. jenniferp1234 Says:

    Foreign investment company registration is already required in many Asian countries for certain types of investment businesses. I think it makes sense and is a good way to go, as long as there is no corruption involved. I’m American but own an investment business that has projects in Bangkok. I gathered all of the information I needed and worked with a good lawyer before going through the Thailand company registration process. India might see a temporary drop in foreign investment companies in the early days of the law’s enactment, as companies adjust to the new regulations; and law firms will have to offer new services that assist with company registration. Hopefully, the law will make the foreign investment sector in India more transparent, efficient and organized.


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