NRI Investments Overview

Indian companies existing or new (both private & public limited companies) engaged/ proposing to engage in any activity including finance, hire purchase, leasing, trading, other services, etc. (except agricultural/ plantation activities) are allowed to raise money by issue of equity shares or debentures on repatriation basis to NRIs/OCBs and FIIs. However, the aggregate allocation of shares qualifying for repatriation benefits to such non-resident investors should not exceed 24% of the face value of the new shares thus issued. The funds for such investment should be received by way of remittance from abroad through normal banking channels or by debit to NRE/ FCNR account of the non-resident investor. Non-residents need not apply to RBI for approval. Only Indian companies should approach central office of RBI for necessary approval.

NRIs/OCBs can subscribe to new issues of equities or debentures of any new or existing company with the right of repatriation of capital invested and income accrued thereon provided the aggregate of issues to non-residents does not exceed 40% of the face value of the new issue. If investment exceeds 40% the repatriation will be limited to only 40%. The subscription for such shares should be from NRE/FCNR accounts or remittances from abroad. The investments can be made only in private or public limited companies raising their capital for setting up new industrial/manufacturing project or for expansion / diversification of their existing industrial / manufacturing activities. This scheme is restricted to the following types of companies: Hospital including diagnostic centers, Hostels 3,4,5 star rating Shipping, Development of computer software and Oil exploration services. Non-resident investors are not required to apply to RBI for permission. Only Indian companies should approach Central office of RBI for necessary approval.

 Investment in shares/ debentures of Indian companies by NRIs/OCBs is permitted with repatriation benefits subject to the

following conditions imposed by the Reserve Bank of India:

a.The investment should be made through a recognized Stock Exchange in India and also through a designated branch of an authorized dealer.

 b.The investment is made either through an inward remittance in foreign exchange or debit to the investor's NRE/FCNR account.

c.The purchase of shares and debentures under the scheme is to be made at the ruling market price.

d.The NRIs/OCBs must take delivery of shares/convertible debentures purchased before effecting sales.

e. The investments are subject to the following ceilings fixed by the RBI:

The investment in shares/convertible debentures purchased through stock exchange is restricted to 5% of the total paid- up capital of the company in case of a single individual NRI or OCB. The aggregate investment in shares/debentures purchased through Stock Exchange for all Non-Resident Indian/OCBs is restricted to 10% of the total paid-up capital of the company. However, Indian companies listed on recognized stock exchange in India may decide by a General Body Resolution to allow NRIs/OCBs to acquire shares/debentures upto 24%instead of 10%.

The NRIs/OCBs should approach the Reserve Bank through a designated branch of a commercial bank in form RPI and RPC for approval. The general permission granted by Reserve Bank is initially valid for a period of 5 years, but can be extended thereafter. Only one bank can be authorized to carry out transactions on behalf of an NRI/OCB. Repatriation of sale proceeds will be allowed without any lock-in-period.

As non-convertible debentures normally carry a higher rate of interest, the Reserve Bank does not normally allow every company to accept investments from NRIs/OCBs. The companies desiring to issue non-convertible debentures to NRIs/OCBs have to approach the Chief General Manager, RBI for approval where the applications are considered purely on merits.

Investment in Public Sector Undertakings Bonds is permitted for NRIs/OCBs on a repatriation basis for both the principal and the interest accrued thereon. The PSUs should obtain permission from Government of India, Ministry of Finance, New Delhi for raising funds through the issue of bonds and adhere to the guidelines issue by the GOI in this regard

NRIs/OCBs are permitted to invest in priority industries i.e. those industries included in Annexure III to the Government of India’s statement on Industrial Policy. They can subscribe with 100% repatriation benefits to the new issue of equity capital or convertible debentures floated by these industries and companies engaged in export trading activities. The RBI has granted general permission to Indian companies for issue and export of equity shares to NRI/OCB investors. The scheme is open to new industries as well as for expansion/ diversification of existing industrial undertakings as listed in the Industrial Policy statement dated 24.7.91.The funds for investments should come either by way of inward remittances or by debit to NRE/FCNR account of the investor.

Repatriation of investment under this scheme will be permissible only after the unit has gone into commercial production and subject to compliance with conditions stipulated at the time of investment. The RBI has clarified that it has now been decided to allow remittances of income earned by NRIs/OCBs as and when desired, provided the applicant is able to produce No Objection/Income tax clearance certificate from the I.T authorities for each remittance sought.

The NRIs/OCBs can make investments upto 100% in Indian companies primarily engaged in export trading activities or in 100% Export Oriented Units or the units located in Export Processing Zones. The permissions should be obtained from Development Commissioner or the Secretariat for Industrial Approvals (SIA), Department of Industrial Development, Ministry of Industry, Government of India, New Delhi. After taking necessary permission, the applicants should approach the concerned Regional Office of the Reserve Bank of India.

However, repatriation will be allowed only after the unit has gone into commercial production and also subject to such conditions as are stipulated by the Government at the time of investment.

NRIs/OCB’s can invest upto 100% in the new issue of equity shares/convertible debentures of Indian Companies, which are engaged in the permissible activities in real estate development. Repatriation of the original investment is allowed only after a lock-in period of 3 years from the date of issue of equity shares/convertible debentures. However, OCB’s are also allowed to repatriate net profit arising from sale of such investment only to the extent of 16 %.

The following activities are treated as permissible activities of Real Estate Development.

a.Development of servic·d plots and construction of built up residential premises.

b.The construction of residential and commercial premises including business centers and offices.

c.Development of township .

d.City and region level urban infrastructure facilities including roads and bridges .

e.Manufacture of building materials .

f.Financing of housing development.

NRIs/OCBs are allowed to set up Indian companies with 100% equity participation for carrying on air taxi operations. Repatriation of the investment and/or dividend, if any declared will be permitted only after the expiry of five years from the date of operation of Air Taxi Scheme and only out of the accumulated net foreign exchange earnings.

NRIs/OCBs are permitted to undertake revival of sick industrial units by investing in the equity shares of the company either by way of purchase from existing shareholders or by subscribing to new equity shares of the company. The investment should be made either from their NRE/FCNR accounts in India or remittance from abroad. The investment can be upto 100% of the equity capital of the sick company with full benefits of repatriation of capital invested and income earned. However, the repatriation will be allowed only after 5 years. The investment in sick units should be approved by the existing shareholders through a Special Resolution.