1. Modification in the ECB policy

1. ECB by certain Special Purpose Vehicles (SPVs) or any other entity notified by the RBI
   
   In further liberalization of the ECB policy, RBI has now clarified that Special Purpose Vehicles (SPVs) or any other entity, notified by it and which is set up to finance infrastructure companies/projects exclusively will also be treated as Financial Institutions and ECB by such entities now will be entertained under the Approval Route on case by case basis.
    

2. Standby letters of credit, letters of undertaking or letters of comfort in respect of ECB by textile companies
   
   Keeping in view the need to facilitate capacity expansion and technological upgradation in the Indian textile industry after the phasing out of Multi-Fibre Agreement, RBI has also agreed to consider applications for issue of Guarantees, Standby Letters of Credit, Letters of Undertaking or Letters of Comfort by the banks in respect of ECB by textile companies for modernization or expansion of their textile units under the Approval Route subject to prudential norms.

[Source: A.P. (DIR Series) Circular No. 15 dated November 4, 2005]

2. Foreign investments in Asset Reconstruction Companies (ARCs)

1. Foreign Direct Investment

Foreign Investment Promotion Board (FIPB) would henceforth consider applications from eligible persons/entities under the Foreign Direct Investment (FDI) route other than FIIs to invest in the paid-up equity capital of Asset Reconstruction Companies (ARCs) which are registered with the Reserve Bank of India subject to the following conditions:

1. Maximum foreign equity shall not exceed 49% of the paid-up equity capital of the ARC.
    

2. Where investment by any individual entity exceeds 10% of the paid up equity capital, ARC should comply with the provisions of section 3(3)(f) of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).

The policy on FDI in ARCs would be subject to review after two years.

2. Investments in security receipts issued by ARCs

Foreign Institutional Investors (FIIs) registered with Securities and Exchange Board of India (SEBI) are now granted General Permission to invest in Security Receipts (SRs) issued by Asset Reconstruction Companies (ARCs) registered with RBI. FIIs to invest up to 49 per cent of each tranche of scheme of Security Receipts subject to condition that investment of a single FII in each tranche of scheme of SRs shall not exceed 10 per cent of the issue.

The policy on FII investment in SRs would be reviewed after one year.

[Source: A.P. (DIR Series) Circular No. 16 dated November 11, 2005]

3. Clarification – Transfer of shares/convertible debentures by way of sale

Reserve Bank has clarified that transfer of shares/convertible debentures of an Indian company, engaged in an activity earlier covered under FIPB/SIA route but now falling under Automatic Route of RBI is permitted provided conditions specified in Circular No. 16 dated October 4, 2004 are satisfied. However, such a relaxation is not applicable in case the Indian company is engaged in any activity in the financial service sector (i.e., bank, NBFCs and insurance).

Transfer of shares by a non-resident to an Indian company through buy-back or capital reduction scheme of the company is also permitted under automatic route.

[Source: A.P. (DIR Series) Circular No. 10 dated August 30, 2005]

4. Overseas Direct Investment (ODI) in Bhutan

Hitherto Overseas Direct Investment in Nepal and Bhutan was permissible only in Indian rupees. It has now been decided to allow Direct Investments in Bhutan also in freely convertible currencies. This facility will be in addition to the existing facility of making investments in Indian rupees. All dues receivable on such investments as well as their sale/winding up proceeds are required to be repatriated to India in freely convertible currencies only. This relaxation is not applicable for Direct Investments in
Nepal which can only be made in Indian rupees.

[Source: A.P. (DIR Series) Circular No. 9 dated August 29, 2005]

5. Modification in procedure for transfer of Shares by way of gift to non residents

Procedure for obtaining approval for transfer of any security including shares/convertible debentures, by way of gift, to a person resident outside India is now modified. The applicant is now required to submit certain prescribed information/documents (As Prescribed in Annex 1 which is attached to the Circular).

Applications in this regard can be submitted to the Chief General Manager, Reserve Bank of India, Foreign Exchange Department, Foreign Investment Division, Central Office, 11th Floor, Fort, Mumbai 400 001.

It is clarified by RBI that henceforth, it would consider following factors while considering such applications:

1. The transferee (donee) is eligible to hold such security under Schedules 1, 4 and 5 of the Notification ibid.
    

2. The gift does not exceed 5 per cent of the paid-up capital of the Indian company/each series of debentures/each mutual fund scheme.
    

3. The applicable sectorial cap/foreign direct investment (FDI) limit in the Indian company is not breached.
    

4. The transferor (donor) and the transferee (donee) are close relatives as defined in section 6 of the Companies Act, 1956.
    

5. The value of security to be transferred together with any security transferred by the transferor, as gift, to any person residing outside India does not exceed the rupee equivalent of US$ 25,000 during a calendar year.
    

6. Such other conditions as considered necessary in public interest by the Reserve bank.

[Source: A.P. (DIR Series) Circular No. 8 dated August 25, 2005]

6. Foreign Investment in print media sector

Reserve Bank has withdrawn prohibitions it placed earlier on FIIs, NRIs and FVCIs on purchase of shares of Indian companies engaged in print media sector in line with decision of the Central Government to permit Foreign Direct Investment (FDI) and Portfolio Investment within the composite ceiling of 26 per cent of the paid-up capital of an Indian company publishing newspapers and periodicals dealing with news and current affairs. Indian company accepting FDI would have to comply with the guidelines issued on July 13, 2005 by the Ministry of Information and Broadcasting in this regard. (Detailed Guidelines are available on the website http://mib.nic.in/informationb/CODES/FDI2130705.htm )

[Source: A.P. (DIR Series) Circular No. 6 dated August 11, 2005]

7. Enhancement of FDI ceiling in the telecom sector

The Government has enhanced Foreign Direct Investment ceiling in Telecom sector for certain telecom services from 49% to 74% subject to FIPB approval and upon fulfilment of terms and conditions specified in the Press Note No. 5 (2005 Series) dated 15th November 2005. Press Note 15 (1998 series) and Press Note 2 (2000 series) issued earlier in this regard stand modified to the above extent.

[Source: Press Note No. 5 (2005 Series) dated November 3, 2005]

8. FDI in terrestrial broadcasting FM

Till now, foreign investment was permitted in Terrestrial Broadcasting up to 20% under the Portfolio Investment Scheme (PIS) and Foreign Direct Investment (FDI) was not permitted by foreign entities. Vide Press Note No. 6 (2005 Series) dated 15th November, 2005 the Government has now permitted foreign investment, including FDI, NRI and PIO investments and portfolio investments up to 20% equity for FM Radio’s Broadcasting Services subject to such terms and conditions as are specified from time to time by Ministry of Information and Broadcasting for grant of permission for setting up FM Radio Stations.

[Source: Press Note No. 6 (2005 Series) dated November 15, 2005]