What changed
Previously, Indian VCFs faced restrictions on investing in offshore venture capital undertakings. Now, RBI has set an overall cap of USD 500 million for such investments, with SEBI responsible for allocating limits to individual VCFs and issuing necessary regulations. The enabling SEBI amendment was notified in January 2006.
What it means for you
Banks acting as AD Category-I must inform their customers about this new facility. For lenders, this opens a channel for VCF clients to expand globally, potentially increasing demand for foreign exchange services and compliance advisory. The move aligns with liberalizing capital outflows for venture capital, but banks should ensure clients meet SEBI's conditions.
What you must do
- Inform all SEBI-registered VCF clients about the USD 500 million aggregate limit and SEBI's role in allocation.
- Advise clients to approach SEBI for prior approval before making offshore investments; no separate RBI permission is needed.
- Update internal FEMA compliance checklists to reflect that VCF investments under this circular do not require RBI approval.
- Monitor that any outward remittances for such investments are backed by SEBI's allocation letter.
Who it affects
All Category-I Authorised Dealer Banks, SEBI-registered Indian Venture Capital Funds, Customers and constituents of AD Category-I banks dealing with VCFs
Do VCFs need RBI approval for each offshore investment under this circular?
No. RBI has delegated the approval process to SEBI. VCFs must obtain prior approval from SEBI, and no separate RBI permission is required.
What is the total limit for all VCFs combined?
The aggregate limit for all Indian VCFs investing in offshore venture capital undertakings is USD 500 million. SEBI will allocate individual limits.
Which instruments can VCFs invest in offshore?
They can invest in equity and equity-linked instruments of offshore venture capital undertakings, subject to SEBI regulations.