Reserve Bank Of India(RBI) Introduced New Draft To Facilitate Investments In Overseas Technology Funds
The Reserve Bank of India(RBI) introduced a new draft to facilitate investments in overseas technology funds which further deploy these funds to foreign startups.
RBI is of the opinion that the current overseas direct investment policy does not meet the eligibility norms for making overseas direct investments under the automatic route. That is the reason they are making amendments to introduce this change.
As stated currently on the regulator’s official website, “Direct investments outside India means investments, either under the Automatic Route or the Approval Route, by way of contribution to the capital or subscription to the Memorandum of a foreign entity or by way of purchase of existing shares of a foreign entity.”
Here, Automatic Route is the one where an Indian Party does not require any prior approval from RBI to invest in startups abroad. So, the draft framework will now state that the Indian parties would need to meet a set of conditions and seek approval from RBI before making investments into overseas tech funds (not startups).
The RBI laid down a slew of conditions to be met for the Indian party wishing to invest in the fund. They include having a minimum net-worth of INR 500 crore, exclusion from the ‘caution list’ it prepares, total overseas investment under 400% of net-worth, and earning net profit for the last three years
The tech fund’s investment in overseas startups should be reported and aligned to the core business activity of the company.
Apart from this, if you’re looking for a one-time approval, then the aggregate or cumulative investment in the overseas technology funds should not exceed 400 percent of your company’s net-worth or USD 500 million, whichever is less.
The RBI also lays stress on the fact that investments in the overseas technology fund should be from the internal accruals/group or associate companies and not borrowed from the banking system in India.