What changed
RBI introduced a strict 180-day timeline for issuing equity instruments against FDI advance remittances, effective November 29, 2007. Previously, no such explicit deadline existed; refunds were allowed under general permission. Now, failure to issue within 180 days mandates immediate refund, with no interest component allowed.
What it means for you
Banks must ensure that their corporate clients issue equity instruments within 180 days of receiving FDI advances, or process refunds promptly. This tightens compliance and reduces the risk of funds being held indefinitely. Non-compliance can lead to FEMA penalties, so banks need to monitor timelines closely and advise clients accordingly.
What you must do
- Update internal systems to track the 180-day deadline from the date of inward remittance or NRE/FCNR(B) debit for FDI advances.
- Advise corporate clients to issue equity instruments within 180 days or arrange immediate refunds via outward remittance or account credit.
- Verify that no part of any refund represents interest on the advance; only the principal amount should be remitted.
- For cases where 180 days have already elapsed as of Nov 28, 2007, guide clients to approach RBI's Regional Office with a definite action plan.
- Ensure that advances are received only under the automatic route for FDI; manual route cases require prior RBI approval.
Who it affects
All Category-I Authorised Dealer banks, Indian companies receiving FDI advance remittances, Non-resident investors making FDI advances
What happens if the 180-day deadline is missed?
The company must immediately refund the advance to the non-resident investor via outward remittance or credit to NRE/FCNR(B) account. No interest can be paid on the advance. Non-compliance is a FEMA contravention and may attract penalties.
Can we get an extension beyond 180 days?
In exceptional cases, RBI may consider refunds beyond 180 days on a case-by-case basis. AD banks must apply to the Regional Office of the Foreign Exchange Department for such approvals.
Does this apply to all FDI advances?
Yes, but only for advances received under the automatic route. For manual route FDI, separate RBI approval is needed before receiving advances.