On Friday, Reserve Bank of India(RBI), introduced a new draft framework 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 tthe reason they are making amends 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 parties need to adhere to the following conditions, if they wish to invest in an overseas fund.
- Minimum net-worth of Rs500 crore,
- Exclusion from the ‘caution list’ it prepares,
- Total overseas investment under 400% of net-worth,
- 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 invetsments in the overseas technology fund should be from the internal accruals/group or associate companies and not borrowed from the banking system in India.