What changed
Guarantees: Previously only promoter corporates could issue guarantees under automatic route; now any Indian entity can offer any form of guarantee (corporate, personal, collateral, group company) provided total financial commitments (including guarantees) stay within 200% of the investing company's networth and guarantee amount is specified upfront. Disinvestment: Automatic route now covers listed overseas JV/WOS, Indian listed promoter companies with networth ≥₹100 crore, and unlisted Indian promoters with investment ≤USD 10 million; prior RBI approval no longer needed for these cases. Proprietorship firms: Star exporters (proprietary/unregistered partnership firms) can now apply for overseas investment with prior RBI approval, subject to eligibility criteria.
What it means for you
Banks must update their internal processes to handle a wider range of guarantee structures under automatic route, ensuring clients' total financial commitments (including guarantees) stay within the 200% networth ceiling. For disinvestment, banks need to verify eligibility (e.g., networth, listing status) and report details within 30 days. Proprietorship/unregistered firm proposals require careful due diligence and forwarding to RBI with bank recommendations.
What you must do
- Update internal guidelines to accept all forms of guarantees (corporate, personal, collateral, group company) under automatic route, ensuring compliance with the 200% networth ceiling and upfront guarantee amount specification.
- Train staff to process disinvestment under automatic route for eligible cases (listed overseas JV/WOS, Indian listed cos with networth ≥₹100 cr, unlisted cos with investment ≤USD 10 mn) and submit details within 30 days.
- Establish a procedure to review and forward applications from proprietary/unregistered partnership firms (star exporters) to RBI with comments/recommendations.
- Monitor that bank-issued guarantees for overseas WOSs/JVs are outside the 200% ceiling and follow prudential norms.
Who it affects
Authorised Dealer (AD) banks handling foreign exchange, Indian corporates with overseas JVs/WOSs, Proprietary/unregistered partnership firms (star exporters), Compliance and trade finance departments of banks
What types of guarantees are now allowed under automatic route?
Indian entities can now offer corporate, personal, collateral, promoter, group company, sister concern, or associate company guarantees, provided total financial commitments (including guarantees) stay within 200% of the investing company's networth and the guarantee amount is specified upfront.
When is prior RBI approval still needed for disinvestment?
Prior approval is no longer needed for disinvestment of listed overseas JV/WOS, or if the Indian promoter company is listed with networth ≥₹100 crore, or unlisted promoter with investment ≤USD 10 million. Other cases still require RBI approval.
Can proprietary firms now invest abroad without RBI approval?
No, they need prior RBI approval. Only star exporters (proprietary/unregistered partnership firms) meeting eligibility criteria can apply through their AD bank, which forwards the proposal to RBI.