Southern India Regional Council of
The Institute of Chartered Accountants Of India
(Setup by an Act of Parliament)

 

Professional Updates

 

Professional Updates- October 2018

Fema

  1. Amendment to Regulation 13 (Reporting Requirements) of FEMA FDI Regulations,2017

With effect from 1st September,2018 reporting requirement for any investment made in India by a person resident outside India has undergone following amendments:

  • Reporting requirement of Advance Remittance Form (ARF) within 30 days of receipt of amount for issue of capital instruments has been omitted.

  • An Indian entity or an investment Vehicle making downstream investment in another Indian entity which is considered as indirect foreign investment for the Indian entity in terms of Downstream Investment (Regulation 14 of FEMA FDI Regulations,2017) shall file “Form DI with the Reserve Bank of India (RBI) within 30 days from the date of allotment of capital instruments”.

  • An Investment Vehicle which has issued its units to a person resident outside India shall file “Form InVi with the RBI within 30 days from the date of issue of units”.

Reference: G.S.R. 823(E) dated 30th August, 2018 issued by RBI.

  1. Foreign Investment in India - Filing of Single Master Form (SMF) in FIRMS Portal

With effect from 1st September,2018, RBI has made available SMF for filing various forms such as reporting of indirect foreign investment through Form-DI, reporting of inflows in investment vehicles through Form-InVi and reporting in FC-TRS, LLP-I, LLP-II, ESOP, DRR and CN on RBI Website https://firms.rbi.org.in.

At present, filing of Forms on eBiz Portal is not available. Considering number of cases pending for disposal on eBiz Portal at Authorised Dealer (AD) Banks or Companies/Entities end, it is advised to AD Banks and Companies/Entities to clear off all the forms which were kept under resubmission by providing clarifications /additional documents sought before 20th September,2018. For filing forms in FIRMS Application, Company/entity needs to create a Business User Login which is different from Entity User Login. Entity User is for giving the details of Foreign Investment only. For more details relating to registration and Form filing process, please refer to the User Manual for SMF-FIRMS Application available on RBI Website.

Reference: RBI Letter vide FE.CO.FID/282/10.02.035/2018-19 dated 31st August, 2018.


 

Professional Updates- June 2018

Fema

I. Investment by Foreign Portfolio Investors (FPI) in Debt – Review

Framework for Foreign Portfolio Investors in Debt was announced on 1st May, 2018 and would be applicable with immediate effect. In this regard, AP (DIR Series) Circular No. 24 dated April 27, 2018, affecting operational aspects of FPI investments in debt was notified. The contents of the notification are as follows:

A. Revision of minimum residual maturity requirement in any category:

(i) Investment in Central Government securities (G-secs), State Development Loans (SDLs), Corporate Bonds and Treasury bills issued by the Central Government with residual maturity below one year by an FPI under either category shall not exceed 20% of the total investment of that FPI in that category at any point of time.

(ii) All securities with residual maturity of less than one year will be reckoned for the 20% limit, regardless of the maturity of the security at the time of purchase by the FPI.

(iii) iii. In case of investments as on 02nd May,2018 (beginning of day), more than 20% of total investment in any category of securities with less than one-year residual maturity, the FPI shall bring such share below 20% within a period of six months from the date of said circular.

(iv) iv. However, the FPI shall ensure that no further additions are made to the portfolio of securities with residual maturity of less than one year as on 02nd May,2018 (beginning of day) either through fresh purchases or through roll-down of investments with current tenor of more than one year, until the share of such portfolio of securities falls below 20% of the total investment in that category.

B. Single/Group investor-wise limit:

The term “related FPIs” as per the circular refers to all FPIs registered by a non-resident entity. Illustratively, if a non-resident entity has set up five funds, each registered as an FPI for investment in debt, total investment by the five FPIs will be considered for application of limits and concentration.

C. Concentration limit:
The term “related entities” shall have the same meaning as defined in section 2(76) of the Companies Act, 2013. A newly registered FPI would mean FPIs registered after April 27, 2018.

D. Implementation:

The implementation date of online monitoring of utilization of G-sec limits has been set as June 1, 2018. The existing process for monitoring of limits as well as allocation of limit through auction mechanism will continue in the meantime.

For more details, refer Notification No. RBI/2017-18/168, A.P. (DIR Series) Circular No. 24 dated 27th April, 2018 and RBI/2017-18/170, A.P. (DIR Series) Circular No. 26 dated 01st May,2018.

II. External Commercial Borrowings (ECB) Policy – Rationalisation and Liberalisation

Corporates and other entities planning to avail ECB to meet their capital needs have been approaching RBI for relaxations in the existing ECB framework. In response to the requests received and experience gained in administering the ECB regime, it has been decided, in consultation with the Government of India, to further rationalise and liberalize the ECB guidelines as under:

A. Rationalisation of all-in-cost for ECB under all tracks and Rupee denominated bonds (RDBs)
B. Revisiting ECB Liability to Equity Ratio provisions
C. Expansion of Eligible Borrowers’ list for the purpose of ECB
D. Rationalisation of end-use provisions for ECBs
All other provisions of the ECB Policy shall remain unchanged.
For more details, refer Notification No. RBI/2017-18/169, A.P. (DIR Series) Circular No. 25 dated 27th April,2018.

III. Introduction of Single Master Form for Reporting of Foreign Direct Investment (FDI) in India


As per the Press Release: 2017-2018/2642 dated 5th April, 2018 by Statement of Developmental and Regulatory Policies, expecting a major change in Reporting of FDI.

FDI in India is made on repatriable basis by non-residents through eligible instruments such as Equity Shares, Compulsory Convertible Preference shares, Compulsorily Convertible Debentures, Share Warrants etc., issued by the investee company or by contributing to the capital of a Limited Liability Partnership (LLP).

At present, the reporting of the above transactions is resulting in a disintegrated manner across various platforms/modes. The Reserve Bank plans to introduce an online reporting by June 30, 2018 via a Single Master Form which would subsume all reporting requirements, irrespective of the instrument through which the FDI is made.


 

FEMA Updates for the month of March 2018

Fema

I. Discontinuance of Letters of Undertaking (LoUs) and Letters of Comfort (LoCs) for Trade Credits

(a). In terms of the extant guidelines of circular on “ADs Permitted to Issue Guarantees upto USD 20 Million for Imports” and Master Direction on “External Commercial Borrowings, Trade Credit, Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other than Authorised Dealers”, the issuance of LoUs/ LoCs/ guarantees for Trade Credits for imports into India under delegated powers of AD banks has been amended.

(b). ADs have been permitted to approve trade credits for imports into India up to USD 20 million per import transaction for import of all items permissible under the EXIM Policy. Trade credits for imports into India exceeding USD 20 million per import transaction requires prior approval of the Reserve Bank.

(c). However, for such trade credits the issuance of Guarantee/Letter of Undertaking (LoU) /Letter of Comfort (LoC) by ADs, in favour of overseas supplier, bank or financial institution, on behalf of their importer constituents, requires prior approval of the Reserve Bank.

(d). To promote investment activity and to further liberalise the procedures relating to trade credits for imports, the policy regarding issuance of guarantees has been reviewed. Accordingly, it has been decided to accord general permission to ADs to issue guarantees/LoUs/LoCs in favour of overseas supplier, bank and financial institution, up to USD 20 million per transaction for a period up to one year for import of all non-capital goods permissible under Foreign Trade Policy (except gold) and up to three years for import of capital goods, subject to guidelines issued by Reserve Bank from time to time.

(e). The period of such guarantees/LoUs/LoCs has to be co-terminus with the period of credit and reckoned from the date of shipment.

(f). As regards reporting arrangements, AD banks are required to furnish data on issuance of guarantees/LoUs/LoCs by all its branches, in a consolidated statement, at quarterly intervals to the Chief General Manager, Foreign Exchange Department, ECB Division, Reserve Bank of India, Central Office, Fort, Mumbai to reach the department not later than 10th of the following month.

(g). On a review of the extant guidelines, it has been decided to discontinue the practice of issuance of LoUs/ LoCs for Trade Credits for imports into India by AD Category –I banks with immediate effect (i.e., from 13th March, 2018).

(h). Letters of Credit and Bank Guarantees for Trade Credits for imports into India may continue to be issued, subject to compliance with the provisions of “Guarantees and Co-acceptances” Master Circular given by the Department of Banking Regulation.

For more details, refer Notification No. RBI/2017-18/139, A. P. (DIR Series) Circular No. 20 dated 13th March, 2018.

II. Hedging of Commodity Price Risk and Freight Risk in Overseas Markets (Reserve Bank) Directions

(a). RBI had earlier constituted a working group to review the guidelines for Hedging of Commodity Price Risk by Residents in overseas markets under the Chairmanship of Shri Chandan Sinha. Based on the report of the working group and comments received on the report, draft directions for hedging of commodity price risk and freight risk were released for comments.

(b). Based on the feedback to the draft directions, the Hedging of Commodity Price Risk and Freight Risk in Overseas Markets (Reserve Bank) Directions, 2018 have been finalized and the revised directions shall come into force from April 1, 2018.

(c). Residents hedging their commodity price risk and freight risk under a specific approval from RBI given under the approval route based on the previous set of guidelines would be permitted to continue hedging under the approval route till June 30, 2018 or the last date specified in the approval, whichever is earlier.

For more details, refer Notification No. RBI/2017-18/138, A. P. (DIR Series) Circular No. 19 dated 12th March,2018.


 

Professional Updates- January 2018

Fema

I. Delays in reporting of various forms under FDI

Reserve Bank of India has updated its Master Direction on Reporting under FEMA, where the following changes have been made with effect from November 7, 2017

a) The person/ entity responsible for filing the reports provided in Part IV of this Master Direction shall be liable for payment of late submission fee (LSF) for any delays in reporting.>

(i) The LSF shall be applicable for the transactions undertaken on or after November 7, 2017.

(ii) The payment of LSF is an option for regularising reporting delays without undergoing the compounding procedure.

b) Calculation and Payment of LSF:

(i) Where LSF is required to be paid, the reports shall be, wherever necessary, conditionally acknowledged subject to payment of the LSF. The final acknowledgement/ communication, wherever applicable, shall be given after the late submission fee is paid by the applicant.

(ii) The amount of LSF will be as per the following Matrix:

CBDT Circulars / Notifications / Instructions
Amount involved in reporting (in Rs.) Late Submission Fee (LSF) as % of amount involved * Maximum amount of LSF applicable
Up to 10 million 0.05 percent Rs.1 million or 300% of the amount involved, whichever is lower
More than 10 million 0.15 percent Rs.10 million or 300% of the amount involved, whichever is lower
* The % of LSF will be doubled every twelve months

(iii) For calculating the LSF amount, the period of contravention shall be considered proportionately {(approx. rounded off to next higher month ÷ 12) X amount for 1 year}.

(iv) For the purpose of calculation, “months” shall include Sundays/ Holidays

(v) For the purpose of calculation, the period shall begin from the day after the 30th day (from the date of receipt of funds/ allotment or transfer of shares) and end on the day preceding the day on which the transaction report is received in the Reserve Bank. The date of reporting to the AD bank shall be deemed to be the date of reporting to the Reserve Bank provided the prescribed documentation is complete in all respects.

(vi) In case the reporting form (whether in physical or electronic form) is incomplete then the delay will continue till such time the form is received complete in all respects.

(vii) The applicant cannot claim a refund in any manner for the amount already deposited as LSF. It will, therefore, be in the applicant’s own interest to ensure compliance with the reporting norms and timelines.

(c) The AD banks are required to ensure that there is no delay at their end in forwarding the completed application to the Reserve Bank. Any such delays will render the AD bank for action as laid down in section 11(3) of the Foreign Exchange Management Act, 1999.

(d) The late submission fee is for reporting delays only. Contravention for non-issue/ late issue of capital instruments or non-transfer/ late transfer of capital instruments and other contraventions of the provisions FEMA 20(R) will be proceeded against as per the procedure laid down in sections 13 and 15 of FEMA, 1999.

(e) The LSF may be paid by way of a demand draft drawn in favour of “Reserve Bank of India” and payable at the Regional Office concerned.

II. Investment by Foreign Portfolio Investors (FPI) in Government Securities Medium Term Framework -Review

(a). The limits for investment by FPIs in Government Securities for the quarter January – March 2018 is increased by INR 64 billion in Central Government Securities (Central G-Secs) and INR 58 billion in State Development Loans (SDLs). The revised limits are as follows:

Revision of limits for the Quarter Jan - Mar 2018

Limits for FPI investment in Government Securities (INR in Billion)
  Central G-Secs SDLs Aggregate
  General Long Term Total General Long Term Total  
Existing limits 1,897 603 2,500 300 93 393 2,893
Revised limits 1,913 651 2,564 315 136 451 3,015

(b). The revised limits will be effective from January 01, 2018.

(c). The operational guidelines relating to allocation and monitoring of limits will be issued by the Securities and Exchange Board of India (SEBI).

For more details, refer Notification No. RBI/2017-18/108, A.P. (DIR Series) Circular No. 14 dated 12th December,2017.


 

Professional Updates- December 2017

Fema

  1. I. Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017

  2. RBI vide Notification No. FEMA 20(R)/ 2017-RB dated 7th November 2017 has notified the new FDI Principal Regulation named as “FEM (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017” in supersession of Notification No. FEMA 20/2000 RB (FDI Principal Regulation) and Notification No. FEMA 24/2000 FEM (Investment in firm or proprietary concern in India) Regulations, 2000, both dated May 3, 2000.

    For more details refer above notification.

  3. II. Risk Management and Inter-Bank Dealings – Simplified Hedging Facility

  4. 1. BI vide A.P. (DIR Series) Circular No. 11 dated 09th November 2017, invited attention to AD Category -I banks regarding FEM (Foreign Exchange Derivative Contracts) Regulations, 2000 (Notification No. FEMA. 25/RB-2000 dated May 3, 2000), as amended from time to time, Master Direction - Risk Management and Inter-Bank Dealings dated July 5, 2016, as amended from time to time, and the announcement made in the Statement on Developmental and Regulatory Policies Reserve Bank of India dated August 02, 2017 (para 7) on the simplified hedging facility.

    2. The scheme of simplified hedging facility was first announced by the RBI in August 2016 and the draft scheme was released on April 12, 2017. The facility is being introduced with a view to simplify the process for hedging exchange rate risk by reducing documentation requirements, avoiding prescriptive stipulations regarding products, purpose and hedging flexibility, and to encourage a more dynamic and efficient hedging culture.

    3. Necessary amendments vide Notification No. FEMA 388/2017 RB dated October 24, 2017 have been made to the principal regulation as given below

    Under the principal regulations, a new para 5C to be added:

    “5C. Permission to resident and non-resident entities to undertake hedge transactions with the simplified procedures

    Notwithstanding anything contained in paras 4, 5, 5A and 5B, resident entities with foreign currency exposures and non- resident entities with rupee exposures, other than individuals, may hedge underlying exchange rate risk arising out of transactions permitted under Foreign Exchange Management Act, 1999, or rules or regulations or directions or orders made or issued thereunder, subject to such simplified terms and conditions as may be set forth in the directions issued by the Reserve Bank from time to time.”

    4. The guidelines of this facility are given in Annex I to this circular and this facility will be effective from January 01, 2018.


    Professional Updates- November 2017

    Fema

    I. Risk Management and Inter-Bank Dealings – Facilities for Hedging Trade Exposures invoiced in Indian Rupees:

    • Non-residents are permitted to hedge the currency risk arising out of INR invoiced exports from and imports to India with AD Category I banks in India.

    Characteristics: Model I: Model II:
    Basic Difference Non-resident exporter / importer or its central treasury (of the group and being a group entity) dealing through their overseas bank (including overseas branches of AD banks in India). Non-resident exporter / importer or its central treasury (of the group and being a group entity) dealing directly with the AD bank in India.
    Process Non-resident exporter / importer, or its central treasury approaches his banker overseas with appropriate documents, the overseas bank in turn approaches its correspondent in India (i.e. the AD bank in India) for a price to hedge the exposure of its customer along with documentation furnished by the customer that will enable the AD bank in India to satisfy itself that there is an underlying trade transaction (scanned copies would be acceptable). The overseas exporter / importer or its central treasury approaches the AD bank in India with a request for forward cover in respect of underlying transaction for which he furnishes appropriate documentation (scanned copies would be acceptable), on a pre-deal basis to enable the AD bank in India to satisfy itself that there is an underlying trade transaction, and details of his overseas banker, address etc. The following undertakings also need to be taken from the customer.
    KYC/AML Certification A certification on the end client KYC may also be taken as a one-time document from the overseas bank by the AD bank in India. The AD bank may obtain certification of KYC/AML. In case the AD bank has a presence outside India, the AD may take care of the KYC/AML through its bank’s offshore branch.
    Maximum amount and tenor of the hedge The amount and tenor of the hedge should not exceed that of the underlying transaction and should be in consonance with the extant regulations regarding tenor of payment / realization of the proceeds. The amount and tenor of the hedge should not exceed that of the underlying transaction and should be in consonance with the extant regulations regarding tenor of payment / realization of the proceeds.
    Settlement on due date On due date, settlement is to be done through the correspondent bank’s Vostro or the AD bank’s Nostro accounts. On due date, settlement is to be done through the correspondent bank’s Vostro or the AD bank’s Nostro accounts. AD banks in India may release funds to the beneficiaries only after sighting funds in Nostro / Vostro accounts.
    Cancellation of contracts The contracts, once cancelled, cannot be rebooked. The contracts, once cancelled, cannot be rebooked.
    Roll over of contracts The contracts may be rolled over on or before maturity subject to maturity of the underlying exposure. The contracts may be rolled over on or before maturity subject to maturity of the underlying exposure.
    Gains a raised on cancellation of contract On cancellation of the contracts, gains may be passed on to the customer subject to the customer providing a declaration that he is not going to rebook the contractor the contract has been cancelled on account of cancellation of the underlying exposure. On cancellation of the contracts, gains may be passed on to the customer subject to the customer providing a declaration that he is not going to rebook the contract or the contract has been cancelled on account of cancellation of the underlying exposure.
    Extension of transaction In case the underlying trade transaction is extended, rollover can be permitted once based on the extension for which suitable documentation is to be provided by the overseas bank and the same procedure followed as in case of the original contract. In case the underlying trade transaction is extended, rollover can be permitted once based on the extension for which suitable documentation is to be provided by the overseas bank and the same procedure followed as in case of the original contract.

    • On a review of this facility, it has been decided to permit the central treasury (of the group and being a group entity) of such non-residents to undertake hedges for and behalf of such non-residents with AD Category I banks in India as per the existing Model I and Model II.

    For further details, please refer the Notification-RBI/2017-18/75, A.P. (DIR Series) Circular No.08 dated October 12, 2017.

    II. Investment by Foreign Portfolio Investors (FPI) in Government Securities Medium Term Framework:

    Revision of Limits for the Quarter Oct-Dec 2017:

    The limits for investment by FPIs for the quarter October-December 2017 is increased by INR 80 billion in Central Government Securities and INR 62 billion in State Development Loans. The revised limits are allocated as per the modified framework are given as under:

    Limits for FPI investment in Government Securities (‘ INR billion)
      Central Government Securities State Development Loans Aggregate
    Process General Long Term Total General Long Term Total  
    Existing 1877 543 2420 285 46 33 2751
    Limits           1  
    Revised Limits 1897 603 2500 300 93 393 2893

    The revised limits came into force from October 3, 2017.

    The operational guidelines relating to allocation and monitoring of limits will be issued by the Securities and Exchange Board of India (SEBI).

    For further details, please refer the Notification-RBI/2017-18/68, A.P. (DIR Series) Circular No.07 dated September 28, 2017.


    Professional Updates- September 2017

    Fema

    1. Risk Management and Interbank Dealings- Reports to the Reserve Bank:

    2. The Reserve Bank of India vide A.P (DIR Series) Circular No: 03 dated August 10, 2017 makes the following amendments to the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000, by inviting the attention of Authorised Dealers (AD) Category-I banks to the amendments made in the Master Director of Risk Management and Inter-Bank dealings dated July 5, 2016.

    The Amendments are as follows:
      • In terms of para (viii) under Part-E (Reports to the Reserve Bank) of the above-mentioned Master Direction, the Head/Principal Office of AD Category-I banks are required to submit a statement in form BAL giving details of their holdings of all foreign currencies on fortnightly basis through Online Returns Filing System (ORFS) within seven calendar days from the close of the reporting period to which it relates. It has now been decided that w.e.f. August 16, 2017 (i.e. for the statement of first fortnight of August 2017) this statement may be submitted through the web portal at https://bop.rbi.org.in as per the format given in Annexure I.
      • In terms of para (ii) under Part-E of the above-mentioned Master Direction, Head/Principal Office of AD Category-I banks are required to submit a monthly statement of Nostro/Vostro account balances. It has now been decided to discontinue this report.


    For Further details, refer Master Direction and A.P (DIR Series) Circular mentioned above.


    Professional Updates- August 2017

    Fema

      • I. Amendments to Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000
      • Second Amendment: RBI has made amendment to Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 vide Notification No. FEMA.385/2017-RB dated 3rd March, 2017
      • In continuation of the Press Note No. 12/2015, dated 24.11.2015, and subsequent Amendments carried in FDI Regulations from time to time, the following amendment has been made in the FDI Regulations:
      • Now LLPs are permitted to receive FDI under automatic route (except from persons being citizens of Pakistan or Bangladesh or an entity incoproated in Pakistan or Bangladesh or RFPI or FIIs or FVCI), subject to the condition that the LLP shall not engage into sectors wherein FDI linked performance conditons are attached.
      • The amendment is effective from date of its publication in the official Gazette. For further details please refer to the related notification.
      • II. Amendment to the Criteria of Recognised Investors in the Issuance of Rupee Denominated Bonds issued Overseas.
      • As per A. P. (DIR Series) Circular No. 60 dated April 13, 2016 on Issuance of Rupee Denominated Bonds overseas, Rupee Denominated Bonds can only be issued in a country and can only be subscribed by a resident of a country:
      • that is a member of Financial Action Task Force (FATF) or a member of a FATF- Style Regional Body; and
      • whose securities market regulator is a signatory to the International Organization of Securities Commission's (IOSCO’s) Multilateral Memorandum of Understanding (Appendix A Signatories) or a signatory to bilateral Memorandum of Understanding with the Securities and Exchange Board of India (SEBI) for information sharing arrangements; and
      • should not be a country identified in the public statement of the FATF as:
      • (i) A jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or
      • (ii) A jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies.

        In order to provide more choices to investors to Indian entities issuing Rupee Denominated Bonds aboard, RBI has decided to also permit Multilateral and Regional Financial Institutions where India is a member country, to invest in these Rupee denominated bonds vide A. P. (DIR Series) Circular No.31 dated 16th February, 2017 w.e.f 16th February, 2017


    Professional Updates- July 2017

    • I. Issuance of Rupee denominated bonds overseas(Masala Bonds)
    • RBI vide A.P. (DIR Series) Circular No.47, dated June 07, 2017 amended ECB Regulations, wherein issuance of Rupee denominated bonds overseas (Masala Bonds), in respect of maturity period, all-in-cost ceiling and recognized investors, details of which are given as under:
    • i. Maturity period: Minimum original maturity period for Masala Bonds, raised up to USD 50 million equivalents in INR per financial year, should be 3 years and for bonds raised above USD 50 million equivalents in INR per financial year, should be 5 years.
    • ii.All-in-cost ceiling: The all-in-cost ceiling for such bonds will be 300 basis points over the prevailing yield of the Government of India securities of corresponding maturity.
    • iii. Recognised investors: Entities permitted as investors under the applicable provisions of Master Direction but should not be related party within the meaning as given in Ind-AS 24.

    For further details please refer to the notification.


    Professional Updates- June 2017

    CA Murali Krishna G
    Email: gmk@sbsandco.com

    • I. Setting up of IFSC Banking Units (IBUs) – Permissible activities
    • RBI vide Notification RBI/2016-17/273, DBR.IBD.BC.59/23.13.004/2016-17, dated April 10, 2017, has permitted IBUs to operated both in Domestic Activities and IBUs as a single entity. As per para 6 of said notification (reproduced below), IBUs are permitted to provide various facilities to the entities operating in IFSC
    • The following text is added at the end of paragraph 2.11 of Annex I and II of the RBI circular DBR.IBD.BC.14570/23.13.004/2014-15 dated April 01, 2015:
    • “As per FEMA Notification No.339/2015-RB dated March 02, 2015, a financial institution or a branch of a financial institution set up in the IFSC and permitted/recognised as such by the Government of India or a Regulatory Authority shall be treated as a person resident outside India. Further, under FEMA Notification No.5(R)/2016-RB (schedule-4) dated April 01, 2016, any person resident outside India, having business interest in India, may maintain Special Non-Resident Rupee Account(s) (SNRRA) with an Authorised Dealer in the domestic sector for meeting their administrative expenses in INR. Accordingly, any financial institution (as defined under FEMA Notification No.339/2015-RB dated March 02, 2015) or a branch of a financial institution including an IBU operating in an IFSC and permitted/recognised as such by the Government of India or a Regulatory Authority, can maintain SNRRA with a bank (Authorised Dealer) in the domestic sector for meeting its administrative expenses in INR. These accounts must be funded only by foreign currency remittances through a channel appropriate for international remittances which would be subject to the extant FEMA regulations. The financial institution can make payments, permissible under FEMA regulations, from its SNRRA, in its capacity as a customer, by suitably instructing the domestic bank with whom the SNRRA is maintained.”
    • For further details please refer to the aforesaid notification.

    • II. Finances of Foreign Direct Investment Companies, 2015-16
    • RBI vide press release number 2016-2017/2936 dated April 28th, 2017, has released the data relating to finances of Foreign Direct Investment (FDI) Companies for the year 2015-16 along with the data for the comparative years 2014-15 and 2013-14.
    • The analysis is based on audited annual accounts of selected 6,433 non-government non-financial (NGNF) FDI companies. These entities accounted for 40.4% of the total paid-up capital of non-financial FDI companies reported in the Reserve Bank’s Census on foreign liabilities and assets of Indian direct investment companies. The highlights relating to the performance of Non-financial FDI Companies has been given in brief in the above mentioned Press release. An article analysing the performance of NGNF FDI companies at the aggregate and granular levels will be published in the June 2017 issue of the RBI Bulletin.
    • For further details, please refer the above mentioned press release.

    • III. Proposed Regulations under Foreign Exchange Management Act, 1999 for Cross Border Mergers:
    • RBI vide press release number 2016-2017/2909 dated April 26th, 2017, has released the draft guidelines proposed to be issued on cross border merger transactions pursuant to the Rules notified by Ministry of Corporate Affairs (MCA) through Companies (Compromises, Arrangements and Amalgamation) Amendment Rules, 2017.
    • In pursuant with the draft guidelines released by RBI, Section 234 of the Companies Act, 2013 provides for mergers and amalgamations between Indian companies and foreign companies as per the rules notified by MCA on April 13th, 2017.
    • RBI has proposed these Regulations under the Foreign Exchange Management Act, 1999 (FEMA) in order to address the issues that may arise when an Indian company and a foreign company enter into Scheme of merger, demerger, amalgamation, or rearrangement. These Regulations stipulate conditions that should be adhered to by the companies involved in the Scheme. The Regulations shall be named Foreign Exchange Management (Cross Border Merger) Regulations.
    • The draft guideline includes the regulations pertaining to Inbound merger, Outbound merger and valuation of the companies involving in the cross border mergers. Further, press release invites public, stakeholders and the experts to provide their views on the draft guidelines which are proposed to be issued.
    • For further details on draft guidelines, please refer the above press release.


    Professional Updates- May 2017

    • I. Risk Management and Inter-bank Dealings: Operational flexibility for Indian subsidiaries of Non-resident Companies
    • 1) RBI vide A.P. (DIR Series) Circular No. 41, dated 21st March 2017 made following amendments Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 dated May 3, 2000, as amended from time to time.
    • 2) With a view to providing operational flexibility to multinational entities and their Indian subsidiaries exposed to currency risk arising out of current account transactions emanating in India, the extant hedging guidelines have been amended as per the terms and conditions are provided herein below:
    • a) Non-resident parent of an Indian subsidiary or its centralised treasury or its regional treasury outside India is eligible to avail this scheme
    • b) The eligible products are All FCY-INR derivatives, OTC as well exchange traded that the Indian subsidiary is eligible to undertake as per FEMA, 1999 and Regulations and Directions issued thereunder.
    • c) Operational Guidelines, Terms and Conditions for hedging

    i. The transactions under this facility will be covered under a tri-partite agreement involving the Indian subsidiary, its non-resident parent / treasury and the AD bank. This agreement will include the exact relationship of the Indian subsidiary or entity with its overseas related entity, relative roles and responsibilities of the parties and the procedure for the transactions, including settlement. The ISDA agreement between the AD bank and the non-resident entity will be distinct from this agreement.

    ii. The non-resident entity should be incorporated in a country that is member of the Financial Action Task Force (FATF) or member of a FATF-Style Regional body.

    iii. The AD Bank may obtain KYC/ AML certification on the lines of the format in Annex XVIII of the Master Direction on Risk Management and Inter Bank Dealings, as amended from time to time.

    iv. The non-resident entity may approach an AD Cat-I bank directly which handles the foreign exchange transactions of its subsidiary for booking derivative contracts to hedge the currency risk of and on the latter’s behalf.

    v. The non-resident entity may contract any product either under the contracted route or on past performance basis, which the Indian subsidiary is eligible to use.

    vi. The Indian subsidiary shall be responsible for compliance with the rules, regulations and directions issued under FEMA 1999 and any other laws/rules/regulations applicable to these transactions in India.

    vii. The profit/ loss of the hedge transactions shall be settled in the bank account and books of accounts of the Indian subsidiary. The AD bank shall obtain from the Indian subsidiary an annual certificate by its Statutory Auditors to this effect.

    viii. The concerned AD Bank shall be responsible for monitoring all hedge transactions (OTC as well as exchange traded) booked by the non-resident entity and ensuring that the Indian subsidiary has the necessary underlying exposure for the hedge transactions.

    ix. AD banks shall report hedge contracts booked under this facility by the non-resident related entity to CCIL’s trade repository with a special identification tag.

    • 3) Necessary amendments to FEM (Foreign Exchange Derivatives Contracts) Regulations, 2000 have been made by way of Notification No.FEMA No.384/2017-RB dated March 17, 2017
      The circular is effective from the date of its publication in the official gazette. For more details, please go through the above circular.


    Professional Updates- April 2017

    Fema

      • I. Amendments to Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000
      • Second Amendment: RBI has made amendment to Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 vide Notification No. FEMA.385/2017-RB dated 3rd March, 2017
      • In continuation of the Press Note No. 12/2015, dated 24.11.2015, and subsequent Amendments carried in FDI Regulations from time to time, the following amendment has been made in the FDI Regulations:
      • Now LLPs are permitted to receive FDI under automatic route (except from persons being citizens of Pakistan or Bangladesh or an entity incoproated in Pakistan or Bangladesh or RFPI or FIIs or FVCI), subject to the condition that the LLP shall not engage into sectors wherein FDI linked performance conditons are attached.
      • The amendment is effective from date of its publication in the official Gazette. For further details please refer to the related notification.
      • II. Amendment to the Criteria of Recognised Investors in the Issuance of Rupee Denominated Bonds issued Overseas.
      • As per A. P. (DIR Series) Circular No. 60 dated April 13, 2016 on Issuance of Rupee Denominated Bonds overseas, Rupee Denominated Bonds can only be issued in a country and can only be subscribed by a resident of a country:
      • that is a member of Financial Action Task Force (FATF) or a member of a FATF- Style Regional Body; and
      • whose securities market regulator is a signatory to the International Organization of Securities Commission's (IOSCO’s) Multilateral Memorandum of Understanding (Appendix A Signatories) or a signatory to bilateral Memorandum of Understanding with the Securities and Exchange Board of India (SEBI) for information sharing arrangements; and
      • should not be a country identified in the public statement of the FATF as:
      • (i) A jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or
      • (ii) A jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies.

        In order to provide more choices to investors to Indian entities issuing Rupee Denominated Bonds aboard, RBI has decided to also permit Multilateral and Regional Financial Institutions where India is a member country, to invest in these Rupee denominated bonds vide A. P. (DIR Series) Circular No.31 dated 16th February, 2017 w.e.f 16th February, 2017


    Professional Updates- March 2017

    • 1. Compounding of Contraventions under FEMA, 1999:

    RBI vide A.P. (DIR Series) Circular No. 29 dated February 02, 2017 has invited the attention of AD Category-I, regarding the delegation of powers to the regional offices (Except kochi and Panaji) of the RBI to compound the contraventions of FEMA without any limit on the amount of contravention. Kochi and Panaji Regional offices can compound the above contraventions for amount below Rs.1,00,00,000/- only. The contraventions of Rs.1,00,00,000/ or more will continue to be compounded at Central Office as hitherto.

    In addition to the existing powers, the RBI has also delegated the power to RO for compounding the delay in filing of FLA as required under FDI regulations.

    The circular is applicable with immediate effect. Please refer the above mentioned circular for further details.

    • 2. Permitting Non Resident Indians (NRIs) access to Exchange Traded Currency Derivatives (ETCD) market:

    RBI vide A.P. (DIR Series) Circular No. 30 dated February 02, 2017 has invited the attention of AD Category-I, relating to permission for NRIs. Currently NRIs are permitted to hedge their Rupee currency risk through OTC transactions with AD banks. With a view to enable additional hedging products for NRIs to hedge their investments in India, it has been decided to allow them access to the ETCD market to hedge the currency risk arising out of their investments in India under FEMA, 1999. An announcement to this effect was made in the Monetary Policy Statement on April 5, 2016. NRIs may access the ETCD market as per the terms and conditions given in the circular

    Please refer the above mentioned circular for further details.

    • 3. Evidence of Import under Import Data Processing and Monitoring System (IDPMS):

    RBI vide A.P. (DIR Series) Circular No. 27 dated January 12, 2017 has invited the attention of AD Category-I, regarding the directions on Obligation of Purchaser of Foreign Exchange and submission of document as Evidence of Import.

    Bill of Entry (BoE) data is received in IDPMS from Customs Department for EDI (Electronic data Interchange) ports and from NSDL for SEZ (Special Economic Zones) on daily basis. BoE data for non-EDI ports are entered by AD bank of the importer on receipt of BoE (importer’s copy) and then the bank uploads the data in IDPMS through “Manual BOE reporting” process. In order to enhance ease of doing business and reduce transaction costs, it has been decided to discontinue submission of hardcopy of Evidence of Import documents i.e. BoE, with effect from December 01, 2016, as it is available in IDPMS. The extant instructions and guidelines for Evidence of Import in lieu of Bill of Entry will apply mutatis mutandis. In case of permitted/approved conditions will be created and uploaded by AD bank of the importer in the form of BoE data as per message format “Manual BOE reporting” in IDPMS.

    Please refer the above mentioned circular for further details.