The Hindu Business Line : OCBs barred from investing in India

THE Reserve Bank of India has barred the overseas corporate bodies (OCB's) from investing in India though various routes and schemes under the foreign exchange regulations.

The RBI had already prohibited the OCBs from making investments under the portfolio investment scheme since November 1991.

Following Tuesday's decision, the OCBs will not be permitted to make fresh investments under the FDI scheme (including the automatic route) .The facility of opening and maintaining fresh non-resident external (NRE) accounts, foreign currency non-resident accounts and non-resident ordinary accounts in India by the OCB's, has also been withdrawn with immediate effect, said an RBI press release today.

An OCB is a company, partnership firm, society or corporate body owned directly or indirectly to the extent of at least 60 per cent by non-resident Indians (NRIs) or a person of Indian origin. Overseas trusts in which not less than 60 per cent beneficial interest is held by the NRIs or persons of Indian origin directly or indirectly will fall under this category.

The RBI decision follows the review of investment activities of OCBs in India by the Reserve Bank on the basis of the recommendations made by the Joint Parliamentary Committee on Security Market Scam, the release said.

Besides the OCBs, no unincorporated entity shall be permitted to make fresh investment under the FDI scheme (including the automatic route). The apex bank has also emphasised that the existing facilities available to the NRIs other than OCBs are in no way modified or restricted by these instructions.

In November 2001, the RBI had banned the OCBs from investing in the stock market under the portfolio investment scheme (PIS). The ban followed allegations of irregular ownership of the OCBs and a SEBI investigation after the stock scam, which had found that huge investments were made by the Mauritius-based OCBs.

The investigations then revealed that Mr Ketan Parekh, stockbroker, had probably used a number of OCBs to route money into the markets.

According to market players, the RBI's latest move is to curb the flow of such funds into the country, especially in the light of the burgeoning forex reserves, which grew by $1.11 billion to go over $87 billion as on the week-ended September 5.

It is understood that the resident Indians or entities own a sizeable number of these OCBs and a good amount of funds that come in the form of FDI is routed by some NRIs through these OCBs.

``Indians are bringing in the money through these routes by under-invoicing, over-invoicing and other such tactics,'' said a forex-head with a private sector bank.

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