RBI’s Restriction On Foreign Venture Capital Funds

RBIMumbai: The central bank (RBI) has specified that the foreign venture capital (VC) funds those kick in a part of the investment upfront, will get entry to Indian markets.

The condition laid down by RBI is related to some credible capital obligation before obtaining a formal registration.

Typically, a new foreign venture capital fund first forms an investment holding company in Mauritius with rudimentary capital, often not more than a few dollars. The investment company then files for registration with Indian regulators, and once it gets the approval overseas investors are gradually roped in.

Normally, the foreign venture capital fund, which is new to the market, initially figures an investment holding company in Mauritius through elementary funds, often not more than a few dollars.

After following up this procedure, the investment company will get filed for listing with Indian regulators. Gradually, the foreign investors are roped in once it gets the authorization. At the time of registration, the foreign investors have to show their investment plan, possible investment corpus and the period over which the money will get in.

“RBI is asking us to disclose the capital base, something which it has never done in the past. Perhaps, it wants some credible investment commitment, in the sense that a part of the proposed investment should lie in a Mauritius bank before registration is granted,” said a consultant to several foreign funds.

It is projected that RBI may have had some bad experience with new funds; so that it has taken this decision to guarantee that the commitment is genuine and credible.

Punit Shah, who heads the financial services group of global consultancy firm PricewaterhouseCoopers (PwC), said that the new condition being asserted by the central bank may deject lots of foreign investors who are unintentional to park money unless the investment vehicle receives regulatory sanction.

Business News: