What changed
Previously, Regulation 5(1) of FEMA 20/2000 barred all persons/entities from Bangladesh or Pakistan from FDI purchases. The amendment (FEMA 167/2007) inserts a new clause (ii) allowing such investments, provided the investor obtains prior approval from India's Foreign Investment Promotion Board (FIPB). Schedule 1 is also updated to reflect this dual route.
What it means for you
Banks must now process FDI applications from Bangladesh citizens/entities only after verifying FIPB approval. This opens a new, though controlled, channel for cross-border capital flows. Lenders should update their KYC and compliance checklists to include FIPB clearance as a prerequisite for such transactions.
What you must do
- Update internal FDI processing guidelines to require FIPB approval for all Bangladesh-origin investors.
- Train AD Category-I staff on the new clause (ii) of Regulation 5 and the amended Schedule 1.
- Advise customers/constituents about the prior approval requirement before initiating any FDI remittance from Bangladesh.
- Maintain separate audit trails for Bangladesh FDI cases to demonstrate regulatory compliance.
Who it affects
AD Category-I banks handling FDI inflows, Indian companies seeking FDI from Bangladesh, Bangladeshi citizens and entities investing in India
Does this circular allow automatic route FDI from Bangladesh?
No. All investments by Bangladesh citizens/entities require prior FIPB approval; the automatic route under Schedule 1 does not apply to them.
What documents must a bank collect from a Bangladesh investor?
In addition to standard FDI documentation, banks must obtain a copy of the FIPB approval letter before processing the investment.
Does this amendment affect existing investments from Bangladesh?
The circular is prospective. Existing investments made before the amendment's effective date (publication in official gazette) are not impacted, but any new purchases or conversions require FIPB nod.