No routing of funds via offshore arms

mumbai: the reserve bank of india has put curbs on overseas investments by defaulters and domestic companies routing funds through offshore subsidiaries. the move is possibly aimed at checking misuse of funds and forex irregularities by indian companies. defaulting companies or their promoters are not entitled to the automatic approval extended last year for investments in joint ventures or wholly-owned subsidiaries abroad. besides, the central bank has also barred corporates from utilising the relaxations for setting up foreign subsidiaries announced last year for setting up special purpose vehicles or holding companies abroad. in a circular to all banks and authorised dealers, the central bank said that though it had on may `00 issued a notification allowing indian parties to make direct investments in joint ventures or wholly owned subsidiaries, this would not apply to special purpose vehicles or holding companies. the circular has been issued after the central bank detected that certain corporates have set up special purpose vehicles overseas for the purpose of acquiring stake in foreign firms. bankers said this could also be an outcome of some of the jpc findings which revealed indian companies have routed funds abroad through subsidiaries floated in mauritius. "accordingly authorised dealers are advised that overseas investment proposals through a two-tier structure, as explained above would require prior approval of the rbi," the circular said. at present, indian parties included in rbi''s caution list are not eligible to make overseas investments under the automatic route. "it is clarified that this restriction is also applicable to indian parties which are defaulters to the banking system in india and whose names appear in the defaulters list published/circulated by rbi."