India: RBI Tightens Control Over Outbound Investment By CICs

Last Updated: 1 March 2013
Article by Ankit Vijaywargiya, Karan Kalra and Kishore Joshi

The Reserve Bank of India ("RBI") vide a notification1 has issued a separate set of guidelines2 ("CIC-OI Directions") for overseas investments by core investment companies ("CICs") which inter alia require all CICs intending to make overseas investments in the financial sector3 to obtain certificate of registration ("CoR") from RBI. These directions are in addition to the already existing guidelines prescribed by the Foreign Exchange Department of RBI for overseas investments. 


Earlier, CICs were not necessarily required to be registered with RBI if certain specified conditions were satisfied4. However, in August 2010, systematically important CICs5 ("CICs-ND-SI") were brought under regulatory supervision6. Such CICs-ND-SI were also subjected to rules and regulations applicable to outbound investments by non-banking financial companies ("NBFCs") vide the 'NBFC (Opening of branch/subsidiary/joint venture/representative office or undertaking investment abroad by NBFCs) Directions, 2011' ("NBFC-OI Directions"), which laid down the conditions subject to which an NBFC may make an investment outside India. However, in May 2012, in view of the unique nature of business of CICs and their need (being holding companies) to invest in both financial and non-financial activities, RBI had released draft guidelines for regulating overseas investment by all CICs. These draft guidelines have now been formalized and introduced as the Core Investment Companies - Overseas Investment (Reserve Bank) Directions, 2012.

CIC-OI Directions

All CICs which intend to invest in financial sector overseas will now be required to hold a CoR and seek prior approval from RBI. Therefore, non-CIC-ND-SIs which were earlier exempt from registration ("Exempted CICs") will now have to seek RBI's registration and comply with all directions/regulations/instructions issued by RBI from time to time if they intend to invest in financial sector abroad.

However, for an outbound investment in non-financial sectors, neither Exempted CICs will require registration nor registered CICs would need prior approval from RBI. However, registered CICs will be required to report such investment with the relevant regional office of the department of non-banking supervision ("DNBS") of RBI within 30 days of making the overseas investment. The overseas investment by CICs is, of course, subject to the conditions prescribed by RBI under FEMA (Transfer or Issue of any Foreign Security) Regulations, 2004, as amended from time to time (the "ODI Regulations"), as explained herein below.

Eligibility Criteria

The RBI has prescribed the following eligibility criteria for CICs intending to invest abroad:

  1. The adjusted net worth ("ANW") of the CIC shall not be less than 30% of its aggregate risk weighted assets on balance sheet and risk adjusted value of off-balance sheet items as on the date of the last audited balance sheet as at the end of the financial year. The CIC shall continue to meet the requirement of minimum ANW, post overseas investment7;
  2. The level of net non-performing assets of the CIC should not be more than 1% of the net advances as on the date of the last audited balance sheet;
  3. The CIC should generally be earning profit continuously for the last three years and its performance should be satisfactory during the period of its existence.

Conditions Prescribed

Overseas investments by CICs are subject to several general and specific conditions prescribed by RBI in this regard.  All CICs are required to comply with regulations issued under ODI Regulations from time to time and no overseas investment could be made in activities prohibited under FEMA. Further, the total overseas investment should not exceed 400%, and investment in financial sector should not exceed 200%, of the owned funds of CIC.

The RBI has also prescribed that in case of issuance of guarantees / Letter of Comfort, if the investment structure requires non-operating holding company, there should not be more than two tiers in the structure. Further, CICs requiring more than one non-operating holding company in the investment structure are required to report the same to RBI for its review.

As CICs are non-operating entities, they will not, in the normal course, be allowed to open a branch office overseas. Further, a representative office can be opened overseas with the prior approval of RBI. Such a representative office can undertake liaison work, market study and research, but not any activity which involves outlay of funds. Further, any wholly owned subsidiary ("WOS") or joint venture ("JV") established overseas should not be a shell company8. The WOS/JV abroad can also not be used as a vehicle for raising resources for Indian operations.

RBI has also laid down other regulations and several reporting and disclosure requirements for CICs making overseas investments, including for issuance of guarantees and letters of comfort.


Overseas investments by Indian companies, including in the financial sector, were regulated by RBI inter-alia under the ODI Regulations. NBFC-OI Directions were issued to specifically regulate overseas investments by NBFCs. However, within CICs, only CICs-ND-SI's were regulated under NBFC-OI Directions and not Exempted CICs. Therefore, RBI has now tightened its grip on CICs and brought all CICs investing in the financial sector overseas under its regulatory supervision. Further, the NBFC-OI Directions prohibited any investment in non-financial services sector whereas the CIC-OI Directions seems to permit investments in non-financial sectors by all CICs by providing that no registration or prior approval is necessary in case of investment by CICs in non-financial sectors. Further, it is pertinent to note that in order to effectively monitor and control overseas investment structures of CICs, RBI has specifically imposed restrictions on having complex structures. These restrictions do not apply in case of other NBFCs.

With the introduction of the CIC-OI Directions, RBI has brought Exempted CICs investing in the financial sector overseas at par with CICs-ND-SI in all respects. The RBI seems to have also recognized the peculiar nature of the business of CICs and their need to invest in both financial and non-financial sector. In the wake of various liberalization reforms that are being introduced in the financial sector, these changes, though restrictive in their intent, should in the long run prove to be beneficial (especially from a systemic risk control perspective) to the numerous conglomerates in India that in many cases are organized under a CIC holding structure.


1. Notification No. DNBS (PD) 252/CGM (US) - 2012, dated December 6, 2012

2. Core Investment Companies - Overseas (Reserve Bank) Directions, 2012

3. Financial Sector for this purpose is defined as a sector/service regulated by a Financial Sector Regulator

4. RBI did not earlier consider CICs as carrying on the business of acquisition of shares and securities (which require compulsory registration as a non-banking financial company), if (i) not less than 90% of their assets were in investments in shares for the purpose of holding stake in the investee companies; (ii) they were not trading in these shares except for block sale (to dilute or divest holding); (iii) they were not carrying on any other financial activities; and (iv) they were not holding / accepting public deposits.

5. CIC-ND-SI is defined under the CIC (Reserve Bank) Directions, 2011 as a CIC having total assets of not less than INR 1 billion either individually or in aggregate along with other Core Investment Companies in the Group and which raises or holds public funds.

6. Holding company structures under regulatory scanner

7. For this purpose, the risk weights are as laid down in the Notification No.219 dated January 05, 2011

8. Shell Company has been defined to mean a company that is incorporated, but has no significant assets or operations. However companies undertaking activities such as financial consultancy and advisory services shall not be considered as shell companies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Ankit Vijaywargiya
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions