Thursday, August 6, 2015

Demystifying FEMA

A business can get long term funds in the form of Equity or Loan or Hybrid instruments.
If a company desires to get these finds from offshore sources, it has to comply with various FEMA requirements. These requirements are spread over numerous FEMA Notifications issued by the Reserve Bank of India.

In this and a series of following posts, I would try to demystify these notifications. A word of disclaimer becomes necessary. The views expressed here are purely personal and the ruling of RBI would be final. The contents of any of my blog should not be taken as professional advice. This is for academic discussion only.

Most common form of long term funds is Equity. Equity can be accessed in Direct or Indirect form. Indirect form of equity means Portfolio Investment by Qualified Institutional Investors.

The relevant instructions regarding Direct participation in equity can be found in a document commonly known as FEMA 20. (Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000 Notification No. FEMA 20 /2000-RB dated 3rd May 2000). In past 15 years this notification has been amended numerous times. Thankfully, RBI consolidates its instructions and publishes them in the form of a Master Circular. These instructions are issued by the name "Master Circular on Foreign Investment in India"

The broad provisions under FEMA for issuance of Equity instruments are that the reporting of receipt of funds from abroad has to be done to RBI within 30 days of receipt of funds through the Authorised Dealer Bank (AD Bank). The shares have to be allotted within 180 days of receipt of funds. The allotment of shares has to be reported to RBI within 30 days of allotment.

In the month of July every year a report has to be submitted to the Department of Statistics and Information Management (DSIM) about the position of Foreign Investment in the Company.

In the following posts, I will discuss about the specific class of investors, instruments and other detailed instructions.

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Vasant Vihar, New Delhi, India
A Central Banker with 22+ years of experience. Interested in latest developments in Indian Economy and Banking. Certified Trainer with 5+ years of experience in classroom training. VIEWS EXPRESSED ARE PURELY PERSONAL