- Количество слайдов: 57
Foreign Exchange: • Foreign exchange is the mechanism by which the currency of one country gets converted into the currency of another country. This is carried out through the intermediation of banks. The term also refers to foreign currencies and balances in foreign currencies held abroad. • Foreign Exchange is required for settlement of economic transactions between residents of two countries. The transactions may relate to trade in good and services, capital flow and persona remittances.
Foreign Exchange conti. . • The rate at which a currency is converted into another currency is the exchange rate between these currencies. • The statutory basis for regulation of foreign exchange in India is the Foreign Exchange Management Act, 1999. RBI has been vested with the administrative responsibility for FEMA.
Authorized Persons Authorized persons are institutions authorized by RBI under FEMA to deal in foreign exchange. It is through authorized dealers that actual foreign exchange transactions of the public are executed. Authorized persons consist of authorized dealers, authorized money changers and off-shore banking units.
Authorized Persons conti. . Authorized dealers are of three categories. Authorized dealers category I are bank who are authorized to execute transactions of purchase and sale both relating to trade and non-trade transactions. Authorized dealers category III are financial institutions who can undertake foreign exchange transactions relating to their activities. Authorized dealers category II are permitted to deal in non-trade transactions, both purchase and sale.
Authorized Persons conti. . • Foreign Exchange Dealers’ Association of India is an association of authorized dealers category I and III. • Authorized money changers deal with travel related foreign exchange transactions. A full fledged money changer can both sell and buy foreign exchange. A restricted money changer can only buy foreign exchange.
Foreign Exchange Dealing in Banks Dealing are concentrated at selected branches. Foreign exchange department of branch is divided into different sections as (i) Exports section (ii) Imports section (iii) Remittances section, (iv) Dealings section, and (v) Statistics section • Banks have the system of correspondent banking to execute foreign exchange transactions at places where they do not have a branch. It is an agency arrangement between banks.
Foreign Currency Accounts: Banks maintain foreign currency accounts with banks abroad. Nostro account (our account) is an account maintained by a bank with another bank abroad. Vostro (your account) is an account maintained by a foreign bank with the local bank. Loro account (their account) is an account maintained by a third bank with another bank.
FOREIGN DIRECT INVESTMENT
Foreign Direct Investment Foreign direct investment means an investment by a non-resident entity/person resident outside India in the shares and fully, compulsorily convertible preference shares/debentures of an Indian Company. The motivation is a strategic long-term cross borer relationship to ensure a significant degree of influence in management of the concerned enterprise.
The regulatory framework in India consists of FEMA/regulations / press notes / releases / clarifications by the Government / RBI to promote FDI through a transparent, predictable, simple, clear policy framework and reduced regulatory burden.
Elements of Policy: The main elements of the current policy framework on FDI are : (A) origin, type, eligibility conditions and issue/transfer of investment (B) calculation, entry routes, caps, entry conditions of investment (C) Policy on route, caps and entity conditions (D) Remittances, reporting and violations.
Origin of Investment • Any non-resident can invest in India subject to FDI policy except citizens of Pakistan. • Non-residents from Bangladesh can invest only through Government route with prior approval of the FIPB and those from Bhutan and Nepal can invest only on repatriation basis by inward remittance in free foreign exchange through normal banking channels. • Investment by SEBI-registered FII is subject to 10 and 24 per cent individual and aggregate limit respectively. • A SEBI-registered FVCI can contribute under the automatic route up to 100 per cent in a VCF/IVCU as well as set up an AMC to manage the fund.
• Indian companies can issue shares and fully/compulsorily/mandatorily convertible debentures/ preference shares, based on pricing/valuation determined at the time of their issue. Non/optionally/ partially-convertible debentures/preference shares are considered as debt. The issues of ADRs/ GDRs/FCCBs are treated as FDI. • Companies, including MSEs, and firms/proprietary concerns in India, can issue capital against FDI. However, such investments are prohibited in a firm/concern engaged in agriculture/plantation/real estate
Types of Investments: • The instruments should be issued within 180 days from the date of receipt of the consideration. • The issue price of shares of listed companies should be based on SEBI guidelines while valuation of shares of unlisted companies should be done according to the guidelines of the erstwhile CCI • Foreign investors can also invest through purchase/acquisition of shares from any existing shareholder subject to the specified conditions. Similarly, transfer from residents to non-residents would require RBI’s prior approval in the specified cases, for example, financial services sector, transactions attracting the provisions of the SEBI’s merger/acquisition code, instruments falling outside the automatic route and so on.
• The ECBs can be converted into shares subject to the specified conditions and reporting requirements. Shares can also be issued against lump sum technical know-how fee/royalty subject to SEBI’s pricing guidelines and compliance with applicable tax laws. • Indian companies can freely issue rights/bonus shares to nonresident shareholders subject to sectoral caps and laws like the Companies Act and SEBI Regulations at a price at which they are offered to resident shareholders. • A company can allot additional rights share to them out of the unsubscribed/ portion within the sectoral cap. • Shares can be allotted to the residents outside India in a scheme of merger/demerger/amalgamations of companies. Likewise, shares can be issued under employee stock option scheme to employees of joint ventures/wholly owned subsidiaries abroad.
(B) Calculation, Entry routes, Caps, Entry conditions of Investment Total foreign investment, the sum of direct and indirect, would include all types of investment, namely, EDI, investment in Fl. Is, NRIs, ADRs/GDRs/FCCBs, fully/ compulsorily/ mandatorily preference shares/ debentures. All investments directly by a non-resident entity would be counted for the purpose. The entire investment by a company owned/controlled by non-resident entities only would be considered indirect foreign investment.
Investments by non-residents can be made through two routes: (i) Automatic route without any approval from RBI/Government (ii) Government route under which prior approval of Government through the FIPB is required. The investments would be subject to the existing joint ventures/tie-up conditions. In sectors with caps, Government approval would be required in all cases where the Indian company being established with foreign investment is owned/controlled by non-resident entity or the control/ownership of the existing company is being transferred to a non-resident
• Investments can be made by non-residents only to the extent permitted in the FDI policy. They are prohibited in some sectors/activities. There are percentage restrictions for others. • Non-residents’ investments are permitted with entry conditions such as minimum capitalization, lock-in period and so on. • Such investment would also have to conform to sectoral laws/regulations/rules, national/international security conditions and state level regulations in the legislative domain of the State Government. • Downstream investment is indirect foreign investment by one Indian company into another by way of subscription/acquisition. The guiding principle is to follow the same norm as direct investment
FIPB Guidelines: The FIPB has to follow the prescribed guidelines in considering FDI proposals. It should consider (i) whether the activity involves industrial license (ii) the proposal involves any export projection/has any strategic or defense-related considerations. Moreover, it should priorities (i) Items falling in infrastructure sector/which have export or large employment potential/linkage with agrobusiness sector/greater social relevance (e. g. hospitals) (ii) Proposals resulting in induction of technology. Special consideration should be given to the extent of foreign equity, new project vs existing, issue/transfer pricing, industrial vs. service activity, reservation for SME sector, import of hazardous/banned/detrimental to environment and so on
(C) Policy on Route, Caps and Entity Conditions (i) Prohibition on Investments • FDI is prohibited in the following activities/sectors: (i) retail trading (except single brand product retailing, (ii) atomic energy, (iii) lottery business, (iv) gambling and betting including casinos, (v) chit fund, (vi) trading in transferable development rights (i. e. partly/wholly transferable certificates issued in respect of land acquired for public purpose in consideration of surrender of land by the owner without monetary compensation). (ii) Sector Specific Policy: • There are sector/activity-wise limits on FDI subject to other conditions. An illustrative list is given below:
Automatic Route: • Limit: 100 griculture nd nimal usbandry, ining, A a a h M Coal, Alcohol, Coffee/rubber processing / warehousing, Hazardous chemicals/Industrial explosives/drugs and pharmaceuticals, Power, Advertising and films, Civil aviation (Automatic 74), Business services, Construction and maintenance/Ports and harbor/Development of township, NBFCs, Petroleum/natural gas, Storage/warehouse, Trading, Transport, • 74 Private sector banks, HITS (A: 49), Telecom (A: 49) • 49 Health/hotels/industrial parks • 26 Insurance
Government Route: • Limit: 100 Tea plantation, Cigar/cigarettes, Civil aviation (GR: 26), Courier services, Publication of magazines, E-commerce • 74 Satellite • 49 Cable network/Direct to home, Commodity exchanges, CTCs/Infrastructure in • securities market, ARCs • 26 Defence/Print media • 20 Public sector banks/FM ratio
(D) Remittances, reporting and violations Remittances: • Sales proceeds of shares/securities held on repatriation basis can be remitted to the nonresidents (net of applicable tax). Similarly, winding-up proceeds, net of taxes, can be remitted, subject to a certificate from the auditors to the effect that (i) all liabilities in India have been fully paid/adequately provided for, (ii) winding-up accords with the provisions of the Companies Act, (iii) there are no legal proceedings pending in any court in India/legal impediments in permitting the remittance. Dividends and interests are freely repatriable without restrictions subject to applicable taxes
Reporting: • The amount received from non-residents on account of investment under the FDI should be reported to the RBI within 30 days from the date of receipt. • A similar report should also be tiled after issue of shares and fully/compulsorily/ mandatorily convertible debentures/ preference shares. • Transfer of shares between residents and nonresidents should be reported to the AD Category-I bank within 60 days from the date of receipt of consideration. • Details of issue of shares against conversion of ECB should reported to the RBl within 7 days from the close of the related month in case of full conversion.
• The converted portion in case of partial conversion should be reported clearly differentiating from the non -converted portion and the outstanding balance of the ECB should be reported in the subsequent month. • Full details of ADRs/GDRs issues should be furnished to the RBl within 30 days from the closure date and a quarterly return within 15 days of the close of the calendar quarter. • The quarterly return has to be submitted till the entire amount raised is repatriated to India/utilized abroad as per the RBl guidelines. • The FDI is a capital account transaction and any violation of its regulations are covered by the penal provisions of the FEMA
Violation/ Penalties: • Violation/contravention of FDI regulations by way of breach, non-adherence/compliance, contravention of any rule/regulation/notification/press note (releases)/circular/direction/order or contravention of condition(s) subject to which an authorization is issued by Government/ RBl would be liable to a penalty up to thrice the amount involved or Rs 2 lakh where the amount is (i) quantifiable and (ii) not quantifiable respectively.
• In case of continuing contravention, a further penalty up to Rs 5, 000 for each day during which it continues, may be levied. Where the contravention is by a company, every person in charge of, and responsible to the company, for the conduct of its business as well as the company would be deemed to be guilty and liable to be punished. An adjudicating authority appointed by the Government consisting of officers may, in addition to imposing any penalty, direct confiscation by the Government of currency/security/money/property relating to the contravention. Appeals against the orders can be preferred to an appellate tribunal. A compounding authority may compound the quantifiable amount involved in the contravention
Other form of Foreign Investments in India/ Abroad The major aspects of other forms of foreign investments in India/abroad are: i. Investment in JVs/WOSs abroad, ECBs Euro issues, FCEBs ii. FII investments, Offshore funds and Overseas venture capital investments
Indian Investment Abroad: An Indian party is permitted to invest in JVs and WOSs abroad within the framework of Government/RBI policy. i. A JV means a foreign concern formed in the host country in which the Indian party makes a direct investment. Direct investment means investment in the equity capital with a view to acquiring a long-term interest in the concern including representation on its Board and so on
ii. A WOS means a foreign concern formed in the host country where entire equity capital is owned by an Indian party. Indian parties are prohibited from making investment in a foreign entity engaged in real estate/banking business without the RBI’s prior approval.
Two Routes: There are two routes for approval for JVs/WOS 5 abroad: (a) Automatic route (b) Approval route The automatic route facility is not available for investment in Pakistan and such Investments in Nepal and Bhutan can be made only in Indian rupees. An Indian party can invest In overseas JV/WOS without RBl’s prior approval up-to 400 per cent of its net-worth.
The main elements of the automatic approval framework are: (I) Investment in unincorporated entities overseas in oil sector (II) Methods of funding (Ill) Capitalization of exports (Iv) Investment in financial services sector (v) Investment in equities of companies registered overseas/rated debt instruments
Approval Route: In all other cases of direct investment abroad, RBI’s prior approval is necessary. The main elements of the framework i. Investment in energy and natural resources sector ii. Overseas investment by proprietorship concerns iii. Overseas investment by registered trust! Society iv. Post-investment changes v. Obligations
vi. Transfer by way of sale of shares vii. Pledge of shares viii. Hedging of overseas direct investment
External Commercial Borrowings: The ECBs refer to commercial loans in the form of bank loans, buyer’s credit, supplier’s credit, securitized instrument (for example, floating rates notes and fixed interest bonds] availed from nonresident lenders. The policy for ECBs is also applicable to FCCBs. They can be accessed through two routes: automatic and approval.
Automatic Route: • The ECBs for investments in real sector-industrial and especially infrastructure do not require Government/RBI approval. Only corporate other financial intermediaries and NGOs engaged in microfinance are eligible borrowers of ECBs/IFCCBs. • The lenders can be only internationally recognized sources such as international banks/capital markets, multilateral financial institutions, export credit agencies, suppliers of equipment, foreign collaborators and foreign equity holders. Overseas organizations/ individuals may provide ECB to NGOs on the basis of a due diligence certificate
• The maturity of ECBs may range between 3 -7 years. • The minimum and maximum amount of ECB for a corporate (NGO) would be US dollars 20 million and 500 million respectively. • The ceiling on all-in costs over 6 month LIBOR currently valid are 300 basic point for average maturity period of 3 -5 years and 350 basic point for more than 5 years. • It is 500 basic points for average maturity of 7 years.
• The ECBs cannot be used for on-lending/investment in capital market/acquiring a company; in real estate: and for working capital/general corporate purpose/repayment of existing rupee loans. • They can be used for investment in industrial and infrastructure sector, overseas direct investment on JVs/WOSs and acquisition of shares in disinvestments process of PSUs. • Until their actual requirement in India, ECB proceeds should be parked outside in liquid assets. Refinancing of existing ECBs by fresh ECBs at lower cost is permitted. • Prepayment of ECBs up-to US dollars 200 million is also permitted.
Approval Route: The approval route of ECBs is applicable to financial institutions/banks/cases falling outside the automatic route limits and maturity period/ECBs by NBFCs with minimum average maturity of 5 years/ ECBs by housing finance companies. All the stipulations applicable to ECBs under the automatic route are also applicable to ECBs under the approval route
Euro Issues: The two long-term primary instruments of Euro issues by Indian corporate are FCCBs and GDRs/ ADRs. • A FCCB is a bond subscribed by a non-resident in foreign currency and convertible into ordinary shares of the issuing company in India on the basis of any equityrelated warrants attached to the debt instruments. • A GDR/ADR means an instrument in the form of a depository receipt/certificate created by the overseas depository bank (0 DB) outside India and issued to nonresident investors against the issue of ordinary shares/FCCBs of the issuing company. • A bank authorized by the issuing company to issue GDRs/ADRs against its FCCBs/ordinary shares is known as the ODB.
Eligibility Criteria: • According to Government guidelines, the issue of FCCBs/ordinary shares through GDR/ADR would have to conform to the FDI policy and other mandatory statutory requirements and detailed guidelines. • An Indian company which is not eligible to raise funds from the domestic market cannot be issuing FCCBs ordinary shares through GDRs/ADRs. • Unlisted Indian companies issues of PCCBs/shares should be simultaneously listed in the Indian stock exchanges. • The OCBs who are not eligible to invest in India through portfolio route and entitles prohibited by SEBI to buy/sell/deal in securities are not eligible to subscribe to FCCBs/ shares through GDRs/ADRs
Issue and Redemption: • The FCCBs (bonds) should be denominated in any convertible foreign currency and shares of the Issuing company should be denominated in Indian rupees. • The shares/bonds should be delivered to a domestic custodian bank (DCB) who would instruct the OBD to issue GDR/ADR certificates/ receipts to non-resident investors against the shares/bonds held. • A GDR/ADR may be issued in a negotiable form and may be listed on any international stock exchange for trading outside India. • A non-resident holder of GDRs/ADRs may transfer them or may ask the ODB to redeem them. • The redeemed GDRs/ADRs and underlying shares sold may be re-issued
• The issuing company would finalize the issue structure with the lead manager of the issue. • The aspects to be considered would include i. Public/private placement ii. Number of GDRs/ADRs issued iii. Issue price, interest on FCCBs, conversion price/coupon rate/pricing of the conversion options of the FCCBs.
The pricing for listed companies as well as the conversion price of FCCBs should not be less than the higher of the average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange(s) during (i) 2 weeks or (ii) 6 months preceding the relevant date. The RBI regulations would be the basis in case of unlisted companies
Automatic Route: Indian companies can also access the GDR/ADR market through the automatic route in the following cases: i. Through a registered stock exchange ii. Through private placement if lead managed by an overseas investment banker iii. Linked to employee stock options of by software/IT companies iv. Arising out of business reorganization/merger / demerger. All the mandatory approval requirements under the FDI policy, approvals under the Companies Act, approval for overseas investments and so on should be obtained by the company prior to the GDR/ADR issue
Foreign Institutional Investors: The FII investment is primarily routed through the capital market. A FII means an institution established/incorporated outside India that proposes to make investment in securities in India. A domestic asset management company/portfolio manager who managers funds raised/collected brought from outside India for investment in India on behalf of a sub-account is deemed to be a FII. A sub-account means any person outside India on whose behalf investments are proposed to be made by a FII and who is registered as a subaccount with the SEBI
Registration: To buy/sell/otherwise deal in securities, a FII must be registered with SEBI. The major elements of the registration framework are: i. Eligibility criteria ii. Payment of fee iii. Code of conduct iv. Conditions for registration v. Registration of sub-accounts
Eligible Investments: • Any FII can invest in securities in India in the primary and secondary markets including shares, debentures and warrants—of listed/unlisted/to the listed companies; units of mutual funds; dated Government securities; and commercial papers and so on. A FII/sub-account can also lend securities through an approved intermediary. At least 70 per cent of the aggregate investments of a PH/ sub-account should be in equity and equityrelated instruments.
• As regards secondary market transactions, the FIIs can transact business only by taking/giving delivery of securities. No transaction on a stock exchange can be carried forward. All transaction should be settled only through dematerialized securities. The securities should be registered in the name of the Eli/sub-account
Obligations and Responsibilities: The obligations and responsibilities of the FIIs include the appointment of domestic custodian/designated bank, investment advice in publicly accessible media, maintenance/ preservation of books/ records/documents and appointment of compliance officer. • Any FII/global custodian acting on behalf of a FII has to appoint a domestic custodian to act as custodian of securities for the FII • It has also to appoint a designated bank branch for opening foreign currency denominated accounts and special non-resident rupee accounts.
• Any FII any of his employees should not render any investment advice about any security in the publicly accessible media without a disclosure of his interest including long- short position in the security. • Every FII should maintain and preserve for 5 years accounts relating to all remittances to India, bank statement of accounts, contract notes relating to purchase/sales of securities and communication from/ to the domestic custodian regarding investments. • A compliance with SEBI Act/rules regulations/notifications/guidelines/instructions issued by Government/SEBI
Penal Provisions: The registration of a PII can be suspended for a specified period, cancelled after due enquiry for i. Failure to comply with any condition subject to which certificate was granted ii. Contravention of any of the SEBI Act/regulations. The penalty of suspension/cancellation can also be imposed be SEBI in specified situations
Foreign Currency Exchangeable Bonds: • An Indian company can issue FCEB expressed in foreign currency the principal and interest in respect of which is payable in foreign currency and subscribed by a person who is resident outside India in foreign currency and exchangeable into equity shares of another company (i. e. offered company) in any manner, either wholly/partly or on the basis of any equity related warrants attached to a debt instrument • The proceeds of the ECEB may be invested by the issuing company in the promoter group companies which would use the proceeds in accordance with the end-users prescribed under the ECBs policy
• They may also be invested overseas by way of direct investment including in JVs/WOS. • The interest and the issue expenses should be within the all-in-cost ceiling specified by the RBI under the ECBs policy. • The exchange price of the offered listed equity shares should not be less than the higher of the average of the weekly high and low of the closing prices quoted on the stock exchange during (i) six months, (ii) two weeks preceding the relevant date. The minimum maturity of the FCEB should be five years for redemption purposes. • Interest payments on the FCEBs until the exchange option is exercised would be subject to deduction of tax at source. Tax on dividends on the exchanged portion of the FCEB would be in accordance with Section 115 -AC(i) of the Income-tax Act. The exchange of the FCEB into shares would not give rise to any capital gains tax
Foreign Venture Capital (Overseas Venture Capital Investments) • The FVCIs are not permitted to invest in NBFCs, gold financing excluding companies engaged in gold financing for jewellery, and activities not permitted under the industrial policy of the Government. • They can invest their total funds committed in one VCF; at least 66. 67 per cent should be invested in unlisted equity/equity linked instruments; not more than 33. 33 per cent of funds can be inverted in IPO/debt instruments/preferential allotment/and SPVs
THANK YOU and All the Best