Profit history must for branch licence
Multinationals, which have made a loss in the past three years of their operations in their home country, may find it tough to obtain permission for a branch or liaison office in India.
By TNN |
MUMBAI: Multinationals, which have made a loss in the past three years of their operations in their home country, may find it tough to obtain permission for a branch or liaison office in India. In its eligibility criteria for granting permission for a branch or liaison office to a foreign entity, RBI has included a profit-making track record and a minimum net worth requirement.
To speed up processing of applications for branches and liaison offices, RBI has decided to place on public domain its eligibility criteria for granting such permissions. These eligibility criteria apply to all entities, except banks and insurance companies. In a draft of its proposed guidelines, RBI has said that it will delegate powers to banks to extend the validity of RBI permission to open branches.
Banks will also be expected to monitor activities of these branches and vet new applications to ensure that they meet with the eligibility criteria. The central bank has also said that it proposes to issue unique identification numbers to foreign businesses that open a branch in India.
According to RBI, a branch application is considered on the basis of two criteria ��� basic and additional. Under the basic criterion, an approval is granted under the RBI route or the government route. The RBI route applies to applications from foreign entities which are engaged in sectors where sectoral cap for foreign direct investment (FDI) under the automatic route is 100%.
The government route applies to applications from foreign entities which are engaged in sectors where sectoral cap for FDI under the automatic route is less than 100% which are considered by the Reserve Bank in consultation with the Government of India, ministry of finance, Department of Economic Affairs (DEA).
For a branch office, the applicant company needs to have a profit-making track record during the immediately preceding five years in the home country. For liaison office, it would be a three-year track record. Similarly, an applicant for a branch requires to have a minimum net worth of $10,000, while a liaison office applicant requires a net worth of at least $50,000.
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Branch or liaison offices are usually opened by multinationals ahead of their starting a joint venture or a wholly-owned subsidiary in India. According to RBI, branches can also engage in export-import, provide consultancy service, carry out research or promote technical or financial collaboration between its parent and a local company. They can also represent the parent as a buying or selling agent and can provide services in IT and development of software.Download
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