To
All Category I - Authorised Dealer Banks
Madam / Sir,
Overseas Direct Investment by Regulated
Entities in the Financial Sector
Attention of the Authorised Dealer
(AD - Category I) banks is invited to Regulation 6 and 7 of Notification No.FEMA120
/ RB-2004 dated July 7, 2004 [Foreign Exchange Management (Transfer or Issue
of any Foreign Security) (Amendment) Regulations, 2004], as amended from time
to time, in terms of which, Indian entities investing in entities engaged in
financial services activities overseas have to comply with the additional conditions
laid down in Regulation 7 of the Notification.
2. At present, entities engaged
in financial services activities in India making investment in non-financial
services activities overseas are not required to comply with the additional
conditions mentioned in Regulation 7 of the Notification. With a view to assess
the impact of the overseas operations of such entities on a consolidated basis,
it has been decided that regulated entities in financial sector in India investing
overseas in any activity will also have to comply with the conditions
stipulated in Regulation 7 of the Notification ibid.
3. It is further clarified that
trading in Commodities Exchanges overseas and setting up JV/WOS for trading
in Overseas Commodities Exchanges will be reckoned as financial services activity
and will require clearance from the Forward Markets Commission (FMC). The FMC
has recently put in place guidelines for allowing FMC registered members of
Commodity Exchanges to undertake commodity related activities abroad. Indian
entities desirous of setting up of JV/WOS overseas for trading in overseas commodities
exchanges may, therefore, approach the FMC for regulatory clearance.
4. Unregulated Indian entities
engaged in the financial services activities in India may invest in non-financial
sector activities overseas subject to Regulation 6 of the Notification ibid.
5. Necessary amendments to the
Foreign Exchange Management (Transfer or Issue of Any Foreign Security) (Amendment)
Regulations, 2004 are being issued separately.
6. AD - Category I banks may
bring the contents of this circular to the notice of their constituents and
customers concerned.
7. The directions contained
in this circular have been issued under Sections 10(4) and 11(1) of the Foreign
Exchange Management Act (FEMA), 1999 (42 of 1999) and is without prejudice to
permissions/approvals, if any, required under any other law.
Yours
faithfully,
Salim Gangadharan
Chief General Manager-in-Charge