The Reserve Bank of India (RBI) on Friday came out with a blueprint framework to facilitate investment in overseas technology funds which deploy money in start-ups abroad.
The RBI said such investments do not meet the eligibility norms for making overseas direct investments under the automatic route.
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The RBI said regulation 6 and 7 of a July 2004 Foreign Exchange Management Act (FEMA) notification pose the difficulties, which can be overcome using regulation 9 of the same notification.
The RBI laid down a slew of conditions to be met for the Indian party wishing to invest in the fund. They include having a minimum net worth of Rs500 crore, exclusion from the ‘caution list’ it prepares, total overseas investment under 400% of net worth, and earning a net profit for the last three years.
Apart from this, for one-time approval, the aggregate or cumulative investment in the overseas technology funds should not exceed 400% of the net worth of the Indian party, or $500 million, whichever is less, the RBI said.
The amount to be invested in the overseas technology fund shall be from the internal accruals/group or associate companies in India and not borrowed from the banking system, the RBI said.
The fund’s investments in start-ups overseas should be aligned to the core business activity of the company and proper reporting should take place, it said.