RBI proposes norms for investment in overseas start-ups

The Indian party wishing to invest in overseas start-up funds must have a minimum net-worth of Rs500 crore, says the Reserve Bank of India


The amount to be invested in the overseas technology fund shall be from internal accruals in India and not borrowed from the banking system. Photo: Reuters
The amount to be invested in the overseas technology fund shall be from internal accruals in India and not borrowed from the banking system. Photo: Reuters

Mumbai: The Reserve Bank of India (RBI) on Friday came out with a draft framework to facilitate investment in overseas technology funds which deploy money in start-ups abroad.

The RBI said such investments do not meet the eligibility norms for making overseas direct investments under the automatic route.

The RBI said regulation 6 and 7 of a July 2004 Foreign Exchange Management Act (FEMA) notification pose the difficulties, which can be overcome using regulation 9 of the same notification.

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 Rs500 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.

Apart from this, for one-time approval, the aggregate or cumulative investment in the overseas technology funds should not exceed 400% of the net-worth of the Indian party, or $500 million, whichever is less, the RBI said.

The amount to be invested in the overseas technology fund shall be from the internal accruals/group or associate companies in India and not borrowed from the banking system, the RBI said.

The fund’s investments in start-ups overseas should be aligned to the core business activity of the company and proper reporting should take place, it said.

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