The Hindu Business Line : RBI allows cos, mutual funds to invest more overseas

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RBI allows cos, mutual funds to invest more overseas

Easing the pressure of inflows; ECB prepayment limit hiked

Boosting outflows
Corporates can invest 400 per cent of their net worth abroad.
Individuals can remit $2 lakh per annum.
ECB prepayment allowed up to $500 million.
MFs can invest overseas up to $5 billion.

Our Bureau

Mumbai, Sept 25 In a bid to ease the pressure of forex inflows in the wake of the rate cut by the US Fed, the Reserve Bank of India on Tuesday allowed Indian companies to invest more funds overseas without its prior permission.

RBI would now allow higher limits for corporates in direct and portfolio investments besides pre-payment of external commercial borrowings. Individuals have been permitted to remit up to $2 lakh per annum ($1 lakh earlier) without RBI permission.

As per the measures announced by RBI late on Tuesday evening, Indian companies can now invest in joint ventures or their wholly owned subsidiaries overseas up to 400 per cent of their net worth under the automatic route as against 300 per cent now. The enhanced limit will also be available to registered partnership firms.

The limit of portfolio investment abroad by Indian listed companies has been increased from 35 per cent of the net worth of listed Indian companies to 50 per cent. RBI has also done away with the requirement of 10 per cent reciprocal share holding in the listed Indian companies by overseas companies for the purpose of portfolio investment abroad by Indian listed companies.

The existing limit for prepayment of ECBs without the RBI approval has been increased from $400 million to $500 million, subject to compliance with the minimum average maturity period as applicable to the loan.

The aggregate ceiling for overseas investments by mutual funds, registered with SEBI, has been raised from $4 billion to $5 billion. In addition, the existing facility of investing up to $1 billion in overseas Exchange Traded Funds, as may be permitted by SEBI by a limited number of qualified Indian mutual funds, would continue.

The existing limit under Liberalised Remittance Scheme has been enhanced from $100,000 to $200,000 per financial year.

Dollar mop-up

The treasury head at a private bank said the move has been timed to mop up the expected dollar inflows and manage the reserves. But it is actually laying the foundation for the free float of the rupee. The RBI said in its release that the new measures are in line with the recommendations of the committee on Fuller Capital Account Convertibility.

The RBI’s expectation of huge fund inflows in the wake of the US Fed cut was evident in the central bank’s announcement of a huge Market Stabilisation Scheme auction of Rs 16,000 crore this week. RBI’s intervention in the forex market (by buying dollars to prevent the rupee’s appreciation) also increases the rupee liquidity in the system. The psychological impact of these measures is that the rupee may weaken against the dollar in the wake of anticipated dollar outflows.

However, he said there may not be any immediate impact as mutual funds and individuals making overseas remittances do not fully utilise their existing limits.