Overseas investment limit rolled back to 400% of net worth

KOLKATA: Reserve Bank governor Raghuram Rajan has rolled back the overseas investment limit for companies to 400% of their net worth, and increased remittances for students, a move that can help ease investors’ fears of more curbs on capital outflows.

Last month, in a bid to shore up the rupee, former RBI chief Duvvuri Subbarao had limited overseas investment by Indian companies to 100% of their net worth from 400%. The central bank had also cut overseas remittances by Indians to $75,000 a year from $200,000.

The move had made investors jittery as they viewed them as steps to restrict currency outflows and a reversal of the liberalisation journey undertaken two decades ago. On Wednesday, the RBI said companies borrowing overseas would be allowed to invest up to 400% of their net worth abroad, as earlier.

The earlier limit of 100% will also not apply to financial commitments funded out of exporters’ forex account or if funds are raised via either American or GDRs. In all cases, the 100% limit will not be applicable on commitments made on or before August 14, the RBI has clarified. “Being a strong votary of free market, Rajan has perhaps wanted to start on the right note and the recent perception of capital control has, therefore, been attempted to be reined in,” PwC India’s associate director for financial services Robin Roy said.

The RBI said the measures had been taken in the context of the current macro-economic situation. “It was not the intention of the Reserve Bank of India to restrict bonafide and genuine overseas direct investment transactions by Indian companies,” it said, adding that any financial commitment beyond the 100% cap will require its prior approval. RBI has also allowed companies to raise external commercial borrowing for at least seven years from their foreign equity holder company with minimum 25% interest, provided they don’t use the fund for on-lending to group companies or prepayment before maturity.