Investment Opportunities for Non-Resident Indians

NRIs can make direct investments in proprietary / partnership concerns in India as also in the primary issues of shares / debentures of Indian companies. They can also make portfolio investments, i.e. purchase of shares / debentures of Indian companies through stock exchanges in India. These facilities are available on both repatriation and non-repatriation basis.

In order to facilitate NRIs to set up new companies in India, Reserve Bank vide its Notification NO. FERA 143/93 RB dated 26th April 1993, has granted general permission to NRIs to subscribe to the Memorandum and Articles of Association and to take up the shares of Indian companies for their incorporation. The general permission empowers such Indian companies to issue shares to NRIs provided the total face value of the shares to be issued does not exceed Rs. 10,000/- and the company is not engaged into activity relating to agricultural and plantation.

A. DIRECT INVESTMENT

NRIs are permitted to make direct investment in partnership/ proprietorship concerns in India as also by way of subscription to shares/ debentures of Indian companies. They are also permitted to place funds in company deposits. Similar facilities are also available to OCBs with certain exceptions. Investments made will either be on repatriation or on non repatriation basis depending on the terms and conditions applicable under the existing schemes for NRI investment Wherever the investments are allowed with repatriation benefits, the funds for the purpose should be received by inward remittances from abroad or from the investor’s NRE/ FCNR Accounts. However, in respect of investment on non repatriation basis, funds in NRO Accounts could also be used.

Non resident Indians resident in Nepal will be permitted to make investments in India provided the funds for the purpose are remitted in free foreign exchange through proper banking channels.

I. Investments Without Repatriation Benefits                               [Summary Table]

NRIs / OCBs who undertake not to seek at any time repatriation of the capital invested in India and the income earned thereon are permitted to invest on non repatriation basis. The income earned on these investments as and when accrued are required to be credited to the Ordinary Non Resident Rupee (NRO) account of the investor. Reserve Bank would, however, permit repatriation of the net (i.e. after payment of tax) income / interest earned during the financial year 1994/95 and onwards on such investments/ deposits in accordance with the procedure laid down. The categories of investment under this head are the following

(A) Investment in Partnership/ Proprietorship Concerns

Reserve Bank has granted general permission to NRIs to invest by way of capital contribution in any proprietary or partnership concern in India engaged in any industrial, trading or commercial activity on non – repatriation basis subject to the following conditions:

(a) The amount invested should be remitted from abroad through normal banking channels or by transfer of funds held in investor’s bank accounts in India .

(b) The concern or the NRI does not engage in any agricultural/ plantation activity or real estate business i.e. dealing in land and immovable property with a view to earning profit or income there from .

(c) The amount invested and income accruing thereon are not eligible for repatriation outside India and are payable only in non convertible Indian rupees.

Consequently, it will not be necessary for such partnership/ proprietorship concerns in India to obtain permission of Reserve Bank for receiving capital contribution from NRIs provided the conditions mentioned in the Notification are satisfied. The firm should, however, submit the declaration in Form DIN to the concerned Regional Office or the Reserve Bank in whose jurisdiction it is situated within a period of 90 days from the receipt of investment . The profits due to the NRI investor may be credited to his ordinary Non Resident Account maintained within a bank in India.


(2) Investment in New Issues of Shares/ debentures of Indian Companies

Reserve Bank has granted general permission to NRIs/ OCBs to subscribe to the shares/ convertible debentures of an Indian company on non repatriation basis, and to an Indian company to subscribe to issue shares or convertible debentures by way of new / rights / bonus issue to NRIs/ OCBs on non repatriation basis provided that the invested company is not engaged in agricultural/ plantation activities or real estate business (excluding real estate development i.e. development of property or construction of houses) or chit fund or is not a Nidhi company . The payment for these shares should, however, be received from the NRIs/ OCBs by inward remittance or by debit to their NRE / FCNR/ NRO accounts maintained with an authorised dealer or an authorised bank in India. Consequently, it will be in order for companies in India to issue shares/ convertible debentures to NRIs / OCBs on non repatriation basis by way of new, rights or bonus issues without the prior approval of Reserve Bank provided the condition mentioned in the Notification are satisfied. The company should, however, file a declaration in
Form DIN within 90 days from the date of receipt of the investment to the concerned Regional Office of the Reserve Bank in whose jurisdiction its registered office is situated. The company may also credit the dividend/ interest in respect of the shares/ convertible debentures to the investor’s NRO account with a bank in India.

(3) Investment in Non Convertible Debentures of Indian companies

Reserve Bank of India has granted general permission to Indian companies to issue, by way of public issue, non convertible debentures (NCDs) to NRIs / PIOs/ OCBs on non repatriation basis subject to the following conditions:

(i) The amount of subscription should be received by inward remittance from abroad through normal banking channels or by debit to the non resident’s NRE / FCNR / NRO / NRSR account, as the case may be, with an authorised dealer in India. The principal amount representing the investment is not repatriable. If the investment is made out of funds held in NRSR account , the principal as well as interest earned are not repatriable.

(ii) the rate of interest on such NCDs shall not exceed prime lending rate of State Bank of India, plus 300 basis points.

(iii) The minimum period for redemption of such NCDs should be three years.

(iv) the company raising funds through NCDs should not be engaged in agricultural / plantation activity , real estate, business, trading in Transferable Development Rights (TDRs) or act as Nidhi / Chit Fund company.

(v) the issuer company files with the Regional Officer of Reserve bank, not later than thirty days from the date of receipt of remittance, a report containing the stipulated information within the time frame as required by the Reserve Bank

(4) Purchase of Shares of Indian Companies by Private Arrangement

NRIs/OCBs require permission of Reserve Bank for purchasing shares of Indian companies by private arrangement. For this purpose, application in Form FNC 7 together with the non-repatriation undertaking in Form NRU may be submitted by the non-resident investor to the office of the Reserve Bank in whose jurisdiction the company’s Head/Registered Office is situated.

(5) Investment in Domestic Public Sector and Private Sector Mutual Funds

NRIs/OCBs will be permitted to invest in Mutual Funds by domestic public sector and private sector mutual funds on non-repatriation basis. Applications for the purpose should be made to Reserve Bank in Form ISD by the concerned bank/institution. The non-resident investors do not need separate approval from Reserve Bank for the purpose.

(6) Investment in Money Market Mutual Funds (MMMFs)

NRIs/OCBs will be permitted to invest , on non-repatriation basis, in Money Market Mutual Funds (MMMFs) floated by commercial banks and public sector /private sector financial institutions, with authorisation from Reserve Bank of India/Securities and Exchange Board of India (SEBI). Application for the purpose should be made to the Reserve Bank in Form ISD ( R) by the concerned bank/institution. The NRI/OCB investors do not need separate permission from Reserve Bank for the purpose.

(7) Acceptance of deposits by proprietary concerns/firms/companies in India on Non-repatriation basis.

NRIs/OCBs will be permitted to place funds in deposits with firms/companies in India on non-repatriation basis. The application for this purpose may be made by the depositor or the deposit accepting firm/company to the office of Reserve Bank under whose jurisdiction its Head/Registered Office is situated. In case of acceptance of deposits from NRIs/OCBs under the public deposit scheme, the application for permission should be made by the deposit accepting firm/company through an authorised dealer to the concerned office of Reserve Bank under whose jurisdiction the registered office of the firm/company is situate. No separate application from the non-resident depositor is necessary in such cases.

II. Investment with Repatriation Benefits.                                                       [Summary Table]

NRIs/OCBs are also permitted to make investments in Indian firms/ companies with repatriation benefits i.e. capital invested and dividend/income earned thereon are allowed to be repatriated outside India. NRIs/OCBS can make investments with foreign exchange funds in new issues of shares / convertible debentures of Indian companies on repatriation basis under Direct Investment schemes such as 24% scheme / 40% scheme / 100% scheme. They can also invest in the schemes of domestic mutual funds floated by public / private sector institutions / companies and bonds issued by Public Sector Undertakings. Since the issuing companies would be obtaining the necessary permissions from RBI, the NRI investor does not have to obtain RBI’s permission for investing in such shares/debentures.

(1)Investment in new issues of Indian Companies under 40% Scheme.

NRIs/OCBs are permitted to subscribed to new issues of shares (both equity and preference) and convertible debentures of any new or existing company, with the right of repatriation of capital invest and income earned thereon subject to payment of applicable taxes, provided :

(a) The issue of equity/preference shares and convertible debentures of NRIs/ OCBs with repatriation facility does not exceed 51 percent of the face value of each new issue of the company concerned, and

(b) The shares of the company are not listed on any stock exchange, and

(c) The company is engaged in manufacturing activity not being an activity specified in Annexure III to the Statement of Industrial Policy 1991 of Government of India, amended from time to time.

Indian companies engaged in the following activities are allowed by Reserve Bank of India to issue shares/debentures to NRIs with repatriation benefits to the extent of 40% of the new issue.

1. Industrial and manufacturing units.

2. Hotels with 3, 4, or 5 star category.

3. Hospitals and diagnostic centres.

4. Shipping companies.

5. Development of computer software.

6. Oil exploration services.

Investment under this scheme, can be made for setting up new manufacturing projects or for expansion/diversification of their existing manufacturing activities. The issuer company needs to take permission from the RBI but NRIs/OCBs who have been issued shares/convertible debentures would not need any specific approval.

(2) Investment in New Issues of Indian Companies under 24% Scheme

NRIs/OCBs are permitted to subscribe to new issue of equity shares/convertible debentures of existing or new companies (both private and public limited) engaged/proposing to engage in any activity including finance, hire purchase, leasing, trading or other services etc. (except agricultural/plantation activities and real esate business) with repatriation benefits upto 24% of the new issue of the concerned Indian company. Indian companies seeking investment from NRIs/OCBs under the scheme and satisfying the conditions laid down by the RBI may issue equity share/convertible debentures to NRIs/OCBs without prior approval of Reserve Bank and file a declaration in Form ISD together with the required documents with the concerned Regional Office is situated, within 30 days form the date of issue of shares / convertible debentures. Accordingly, NRIs/OCBs who have been issued shares / convertible debentures would not need any specific approval .

(3) Investment in Priority Industries under 100% Scheme.

NRIs/OCBs are permitted to invest in priority industries and in Indian Companies primarily engaged in export trading activity, with full repatriation benefits upto 100% of the new issue of shares. Indian Companies seeking investment from NRSs/OCBs, without prior approval of Reserve Bank and file a declaration in Form ISD(R ) together with the required documents with the concerned Regional Office of Reserve Bank, under whose jurisdiction their Registered Office is situated, within 30 days from the date of issue of shares. The scheme is open to new industries as well as for expansion / diversification of existing industrial undertakings.

(4) Investment in Housing and Real Estate Development

NRIs/OBCs will be permitted to invest upto 100% in the new issue of equity shares/convertible debentures of Indian companies engaged in the following areas:

(i) Development of serviced plots and construction of built up residential premises;

(ii) Real estate covering construction of residential and commercial premises including business centers and offices;

(iii) Development of township;

(iv) City and region level urban infrastructure facilities including roads and bridges;

(v) Manufacturing of building materials;

(vi) Financing of housing development.

Repatriation of original investment in this case will be permitted by Reserve Bank only after a lock in period of three years from the date of issue of the equity shares/convertible debentures.

(5) Investment in Air Taxi Operations

NRIs/OCBs will be allowed to set up Indian Companies with 100% equity participation for carrying on Air Taxi Operations in terms of the guidelines issued by the Director General of Civil Aviation for Air Taxi Operation. Applications for the purpose should be made to Reserve Bank (Central Office) in Form ISD. Repatriation of the investment and/or remittance of dividend will be permitted only after the expiry of five years of operations of the Air Taxi Scheme and only out of accumulated net foreign exchange earnings.

(6) Investment in Non-Convertible Debentures of Indian Companies

Reserve Bank of India vide its Notification No. F.E.R.A. 213/99-RB dated 1st November 1999, has granted general permission to Indian companies to issue, by way of public issue, non-convertible debentures (NCDs) to NRIs/PIOs/OBCs on repatriation basis subject to the following conditions:

(i) The amount of subscription should be received by inward remittance from abroad through normal banking channels or by debit to the non-resident’s NRE/FCNR account, as the case may be, with an authorised dealer in India. Further, the percentage of such NCDs issued to NRIs/OCBs to the total paid-up value of each series of NCDs issued should not exceed the ceiling applicable for issue of equity shares/convertible debentures as prescribed by the Reserve Bank from time to time, under the respective schemes viz. 24% 51% 100% etc. for investment by NRIs/OCBs on repatriation basis in the capital of the issuer company.

(ii) The rate of interest of such NCDs shall not exceed prime lending rate of State Bank of India, plus 3000 basis points.

(iii) The minimum period for redemption of such NCDs should be three years.

(iv) The company raising funds through NCDs should not be engaged in agricultural/plantation activity, real estate business, trading in transferable development rights (TDRs) or act as Nidhi/Chit Fund company.

(v) The issuer company files with the Regional Office of Reserve Bank, not later than thirty days from the date of receipt of remittance, a report containing the required information and douments as stipulated by the RBI

(7) Investment in Sick Industrial Units

NRIs/OCBs will be permitted by Reserve Bank to undertake revival of sick industrial units by making bulk investment in them either by way of purchase of equity shares from existing shareholders or in the form of subscription of new equity issues of the sick units on the following basis:

(a) The bulk investment can be made on private placement basis upto 100% of the equity capital of the sick company with full benefits of repatriation of capital invested and income earned thereon.

(b) Issue/transfer of equity shares should be approved by the existing shareholders of the company through a Special Resolution

For the purpose of investment under the scheme, as company should be declared a sick or there should be declared a sick or there should be a rehabilitation programmed approved by the public financial institution/commercial bank or a consortium of banks or by the Board for Industrial and Financial Reconstruction (BIFR)

Application for permissions for issue/transfer of equity shares to non-residents should be made by the concerned Indian company in Form RSU to the Central Office of Reserve Bank together with the particulars/documents specified in the application form.

(8) Investment in the schemes of Domestic Mutual Funds

Reserve Bank has granted general permission to domestic mutual funds:

(a) to issue units or any other similar instrument, on repatriation basis, to NRIs/OCBs/PIOs/FIIs under the scheme floated by them with the approval of the Securities and Exchange Board of India, subject to the conditions mentioned below.

(b) to send such units/instruments out of India to the place of residence of location, as the case may be, of the non-resident investor, or to their global custodians in the case of FIIs.

(c) to repurchase units or similar instruments issued to NRIs/OCBs/PIOs/FIIs and to make payment therefore to them;

The general permission to issue units is however subject to the following conditions:

(a) The mutual fund should comply with the terms and conditions stipulated by the Securities and Exchange Board of India.

(b) The amount representing investment should be received by inward remittance through normal banking channels or by debit to the NRE/FCNR account to the non-resident investor or Special Non-Resident Rupee account of the FII maintained with an authorised dealer/designated bank in India.

The net amount representing the dividend/interest and maturity proceeds may be remitted through banking channel or credited to NRE/FCNR/NRO/NRSR account of the non-resident investor or Special Non-Resident Rupee Account of the FII.

(9) Investment in Bonds issued by Public Sector Undertakings (PSUs)

NRIs/OCBs will be permitted to invest in the Bonds issued by Public Sector Undertakings (PSUs) in India with repatriation benefits. The concerned PSU should obtain the necessary approval from the Government of India for raising funds through issue of Bonds and adhere to the guidelines issued by the Government of India, Ministry of Finance, in this regard.

(10) Purchase of shares of Public Sector Enterprises (PSEs) by NRIs / OCBs

Reserve Bank has granted permission to NRIs/OCBs to purchase the shares on repatriation basis disinvested by Government of India in certain Public Sector Enterprises (PSEs) and to PSEs to register in their books the overseas address of such NRIs/OCBs, subject to the conditions that (a) the holding of shares by a NRI or by an OCB, at any time does not exceed one percent of the paid up capital of the PSE concerned, (b) the purchase consideration / bid money is received by way of remittance from abroad through normal banking channels or by transfer of funds held in investor’s NRE/FCNR accounts, and (c ) the application is submitted along with deposit of bid money/purchase consideration at the branch of State Bank of India designated by the Government of India for that purpose in the notice inviting the bids.

(11) Deposits with Companies

NRIs and OCBs will be permitted to place funds in fixed deposits with public limited companies in India (including Government undertakings with limited liability) with full repatriation benefits for a period of three years. The total amount of fixed deposits permitted to be accepted will be stipulated by Reserve Bank in individual cases. The application for permission to accept deposits from non-residents with repatriation rights may be made by the Indian company through its bankers to the concerned office of Reserve Bank under whose jurisdiction its Head/Registered Office is situate, giving details of the deposit scheme. It is not necessary for non-resident depositors to seek separate permission from Reserve Bank in this regard. Reserve Bank will grant permission to the bank branch nominated by the company for accepting deposits. While granting permission, Reserve Bank will authorise the branch to allow remittance of interest and maturity proceeds of deposits or credit thereof to the depositor’s NRE/FCNR account.

B. PORTFOLIO INVESTMENT

General Regulations

NRIs/OCBs have to obtain prior permission of RBI to acquire shares / debentures of Indian Companies and units of domestic mutual funds on both repatriation and non-repatriation basis through stock exchanges in India. The application for permission is to be submitted to RBI through a designated Bank branch in one of the prescribed forms. RBI approval is valid for a period of 5 years from the date of issue Regulations regarding Portfolio Investment (i.e. investment through Stock Exchange) in shares/debentures by NRIs /OCBs have been explained below

1. Portfolio investment in shares/debentures by NRIs/OCBs are permitted only though designated branches of authorised dealers preferably located at centres having stock exchanges. Authorised dealers should inform the names of such branches to Central Office of Reserve Bank and obtain approval. The code number allotted by Reserve Bank should be quoted in all correspondence undertaken with Reserve Bank in this regard. Non-resident investors can also authorise Indian residents or stock exchange brokers as their agents in India to purchase/sell shares on their behalf under the schemes but all transactions should be routed through the designated branch of authorised dealer.

2. NRIs/OCBs will be permitted to make portfolio investment in shares/debentures (convertible and non-convertible) of Indian companies, with or without repatriation benefits provided the purchase is made through a stock exchange and also through designated branch of an authorised dealer. NRIs/OCBs are required to designate only one branch authorised by Reserve Bank for this purpose.

Investment in equity shares and convertible debentures will be permitted subject to an overall ceiling of (a) 10 percent of the total paid-up equity capital of the company concerned and (b) 10 percent of the total paid-up value of each series of the convertible debentures issued by the company concerned for all NRIs/OBCs taken together both on repatriation and on non-repatriation basis.

4. The purchase of shares and debentures under the scheme is required to be made at the ruling market price.

5. NRIs/ OCBs intending to invest on non-repatriation basis should submit their applications in Form NRI and Form NRC respectively, through a designated branch of an authorised dealer to purchase shares/debentures of Indian companies, securities (other than bearer securities) of the Central or State Government and Treasury Bills on behalf of the NRI/OCB subject to the condition that the payment of such investment is received through inward remittance or from the investor’s NRE/FCNR/NRO/NRSR account. The general permission granted by Reserve Bank would be initially valid for a period of five years. Authorised dealers may themselves renew the permission granted by Reserve Bank to individual NRIs as well as OCBs for a period of five years at a time.

6. NRIs and OCBs intending to invest with repatriation benefits should submit their application through a designated branch of an authorised dealer in Form RPI and Form RPC respectively. Reserve Bank will grant general permission to the designated branch for purpose of shares/debentures of Indian companies, securities (other than bearer securities) of the Central or any other State Government and Treasury Bills subject to the conditions that-

a) the payment is received through an inward remittance in foreign exchange or by debit to the investor’s NRE/FCNR account.

b) investment made by any single NRI/OCB investor in equity/preference shares and convertible debentures of any listed Indian company does not exceed 5% of its total paid-up equity or preference capital or 5% of the total paid up value of each series of convertible debentures issued by it.

c) NRIs/OCBs take delivery of the shares/convertible debentures purchased and give delivery of the shares/convertible debentures sold under the scheme.

The general permission granted by Reserve Bank will be valid initially for a period of five years. Authorised dealers may themselves renew the permission granted by Reserve Bank to individual NRIs as well as OCBs for a further period of five years at a time.

7. Shares/debentrues purchased by NRIs/OCBs should be held and registered in the name of either the investor himself or an authorised dealer or the latter’s nominee/s. Shares/debentures can be purchased by NRIs in joint names with other NRIs with permission of Reserve Bank. In such cases, if the investment is with repatriation benefits, the first holder is to be treated as investor for the purpose of 5% ceiling. The second or third holder will be eligible to invest separately in the same company, in his own name as the first holder in joint holdings upto the limit of 5%. Reserve Bank will also permit investment jointly with residents. However, if the resident joint holder inherits the shares/debentures, he/she will not be entitled to repatriation benefits.

C. Investment in Government Securities, National Plan/Saving Certificates and Units of UTI

General Regulations

NRIs are permitted to invest freely in securities (other than bearer securities) of the Central or any State Government and National Plan/Savings Certificates by making remittances form abroad or out of funds held in their NRE/FCNR accounts, provided the purchase/subscription is arranged through the authorised dealer maintaining the account. Authorised dealers may also makes such investments on behalf of NRIs out of funds held in their NRO accounts subject to the condition that the funds invested and any income earned thereon will not be eligible for repatriation out of India at any time in future. Likewise, OCBs can also invest in Government securities and National Plan/Saving Certificates if permitted under the terms and conditions applicable to the sale/issue of such securities and the purchase/subscription is arranged through an authorised dealer.

NRIs/OCBs are permitted to invest in units of UTI subject to the terms and conditions applicable for the issue/sale thereof, against remittance from abroad or out of funds held in their NRE/FCNR account, through the authorised dealer maintaining the account. Funds held in their NRO accounts may also be utilized for the purpose subject to the condition that the funds invested and any income earned on such investment will not be eligible for repatriation out of India at any time in future. UTI has also been granted general permission by Reserve Bank for issue of units to NRIs/OCBs provided the funds towards the purchase price are remitted by the investors from abroad in an approved manner of the price is paid out of the investor’s NRE/FCNR accounts maintained with authorised dealers in India. Where funds held in NRO accounts are utilized for purchase of Units, UTI will issue units to NRIs/OCBs on the conditions that the funds invested and income earned thereon will not quality for repatriation out of India at any time in future. Units can thus be bought by NRIs/ OCBs directly from UTI also.

About the Author

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Vakilno1 is a group of Law Enthusiasts and Legal Experts in India with a passion to provide the latest info and articles on Indian Legal System

 

 

 

 

 

 

Displaying 5 Comments
Have Your Say
  1. Dear Sir,
    can u please enlighten me as to whether a registered LLP can receive FDs and NCDs form the public both Indian and overseas.
    A reply on my e-mail ID will be highly appreciated.
    =Rgds

  2. loan for residential land purchase

  3. arun yadav says:

    Please help me to register a nidhi-company.
    Show me right way and all process about registration of nidhi company with charges and time duration.
    Thank you

  4. We have private slum TDR for selling h ward Mumbai
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  5. hi,
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