The Reserve Bank of India (RBI) notified the Foreign Exchange Management (Overseas Investment) Regulations, 2022 under the Foreign Exchange Management Act, 1999. 16,17 It seeks to regulate debt investment by Indian entities in foreign entities.
Key features are as follows:
▪ Financial commitment by Indian entities: An Indian entity may lend or invest in any debt instrument issued by a foreign entity if the Indian entity: (i) is eligible to make overseas direct investment (ODI), (ii) has made ODI in the foreign entity, and (iii) has acquired control in such foreign entity at the time of making the financial commitment. Loans given by the Indian entity should be backed by a loan agreement where the interest rate shall be charged on an arm’s length basis. Arm’s length basis means a transaction between two related parties that is conducted so that there is no conflict of interest.
▪ Extending guarantees: The Regulations allow certain guarantees to be extended by the Indian entity to the foreign entity or any of its subsidiaries where the Indian entity has acquired control. Such guarantees include: (i) corporate or performance guarantee by Indian entity, (ii) corporate or performance guarantee by a group company of the Indian entity, and (iii) bank guarantee issued by a bank in India. ▪ Reporting requirements: An Indian resident who has made ODI, financial commitment, or disinvestment in a foreign entity shall report certain details through designated banks. These include: (i) whether the financial commitment is reckoned towards the financial commitment limit, (ii) disinvestment transaction within 30 days of receiving disinvestment proceeds, and (iii) restructuring within thirty days from the date of such restructuring.
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