RBI to create enabling framework for growth of startups

MUMBAI: Reserve Bank of India ( RBI) will ease regulations to help start-ups raise foreign funding, simplify the process for outward remittances and also allow innovative instruments like convertible notes as it works with the government to lighten regulations with respect to entrepreneurship in India.

In its monetary policy review on Tuesday RBI said these new directions are in line with the government’s Start-up India initiative and an attempt by the banking regulator to make the eco-system conducive for growth of start-ups.

RBI has created a dedicated mailbox helpstartup@rbi.org.in to provide assistance and guidance to the start-up sector. Physical forms will also be discontinued from February 8 and all investment and financial transactions will be reported on the electronic platform of the RBI.

“These measures will create an enabling framework for receiving foreign venture capital, differing contractual structures embedded in investment instruments, deferring receipt of considerations for transfer of ownership, facilities for escrow arrangements and simplification of documentation and reporting procedures,” RBI said in its monetary policy statement.

The new measures will help start-ups receive foreign venture capital and enable transfer of shares from foreign venture capital investors to other residents or non-residents.

RBI will issue notifications with regards to foreign exchange management act (FEMA) and is also considering permitting start-ups to access rupee loans under external commercial borrowings framework with easier regulations for eligible lenders.

Issue of shares without cash payment through sweat equity or against any legitimate payment owed by the company which does not require any permission under FEMA and collection of payments by start-ups on behalf of their subsidiaries abroad, will also be clarified, RBI said.