RBI draft on branch, liaison offices restrictive
Reserve Bank should strengthen the scrutiny process rather than imposing restrictive conditions on opening of branch and liaison offices by foreign companies in India.
By PTI |
NEW DELHI: Reserve Bank should strengthen the scrutiny process rather than imposing restrictive conditions on opening of branch and liaison offices by foreign companies in India, feel experts.
"RBI could deal with the security concerns by tightening scrutiny process. Imposition of blanket conditions on opening of branch or liaison offices will adversely affect genuine foreign investors," law firm Titus and Co Advocates' senior partner Diljeet Titus said.
The central bank has come out with a draft proposal that seeks to prohibit foreign companies without a five year profit track record from opening branch or liaison office in the country.
As per the draft proposal, which will be given a final shape by the end of June, the foreign companies wanting to open a branch or liaison office should also have a net worth of USD 1 lakh or USD 50,000 respectively. This will be in addition to the five-year track record of profit.
"This is tightening of norms by the RBI. This means that new foreign entities, which have been operational (profitably) for only 2-3 years, will not be able to apply for opening a liaison or branch office. This would thus play a havoc on various companies," PricewaterhouseCoopers' executive director Sanjay Kapadia said.
Commenting on the draft, Ernst & Young partner Hiresh Wadhwani said "the move will ensure that people who are setting up liaison offices in the country are serious about investing in the country. But this is discouraging as many companies who are just beginning their operations will not be able to even open a liaison office in the country". MORE
Many companies tried to circumvent the provisions of Press Note 1 by forming new companies and opening branch and liaison offices in the country, he said, adding that these issues can be addressed by intensive scrutiny of applications of foreign companies.
Through better monitoring, RBI can ensure that all branch or liaison offices of foreign companies, Titus said. Presently only about 30-35 per cent of the such entities file statutory returns with the central bank and other authorities.
According to Kapadia, the proposed provisions will prohibit the loss incurring subsidiaries of even big multinational companies to open branch or liaison offices in the country.
"The provisions will prove to be a big hurdle for the operational companies which are just 3-4 years old, to have a presence in India", Kapadia said.
"RBI could deal with the security concerns by tightening scrutiny process. Imposition of blanket conditions on opening of branch or liaison offices will adversely affect genuine foreign investors," law firm Titus and Co Advocates' senior partner Diljeet Titus said.
The central bank has come out with a draft proposal that seeks to prohibit foreign companies without a five year profit track record from opening branch or liaison office in the country.
As per the draft proposal, which will be given a final shape by the end of June, the foreign companies wanting to open a branch or liaison office should also have a net worth of USD 1 lakh or USD 50,000 respectively. This will be in addition to the five-year track record of profit.
"This is tightening of norms by the RBI. This means that new foreign entities, which have been operational (profitably) for only 2-3 years, will not be able to apply for opening a liaison or branch office. This would thus play a havoc on various companies," PricewaterhouseCoopers' executive director Sanjay Kapadia said.
Commenting on the draft, Ernst & Young partner Hiresh Wadhwani said "the move will ensure that people who are setting up liaison offices in the country are serious about investing in the country. But this is discouraging as many companies who are just beginning their operations will not be able to even open a liaison office in the country". MORE
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Although the RBI provisions are aimed at checking the misuse of the current provisions and help the country in addressing various security and strategic concerns, Titus said, it would not be prudent to "spoil the whole pond because one fish is bad". Many companies tried to circumvent the provisions of Press Note 1 by forming new companies and opening branch and liaison offices in the country, he said, adding that these issues can be addressed by intensive scrutiny of applications of foreign companies.
Through better monitoring, RBI can ensure that all branch or liaison offices of foreign companies, Titus said. Presently only about 30-35 per cent of the such entities file statutory returns with the central bank and other authorities.
According to Kapadia, the proposed provisions will prohibit the loss incurring subsidiaries of even big multinational companies to open branch or liaison offices in the country.
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Moreover, he added, under the proposed provisions only operational companies will be able to apply for opening branch or liaison offices in India and not the holding companies or subsidiaries if they had not made profit during the proceeding five years. "The provisions will prove to be a big hurdle for the operational companies which are just 3-4 years old, to have a presence in India", Kapadia said.
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