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NBFCs must get RBI NoC before overseas investments

Current · Source: Reserve Bank of India · RBI/2009-10/442 · issued 03 May 2010 · ~1 min read
Quick answerRBI mandates all NBFCs to obtain a 'No Objection' certificate from the Department of Non-Banking Supervision before making any overseas investment. Violations of FEMA 2004 rules attract penal provisions.
The rule, in the simplest words
How it plays out — a real example

A forex & trade-finance officer in Indore, Priya, is planning to set up a small lending company in Dubai. Before she can send any money, she must write a letter to the RBI Regional Office in Mumbai (where her NBFC's head office is registered), asking for a 'No Objection' certificate and listing exactly what the Dubai company will do. Only after RBI says yes can she proceed, or else her NBFC could face penalties.

What changed

RBI reiterated that NBFCs must secure prior NoC from the Department of Non-Banking Supervision for any overseas investment. This follows observed instances of NBFCs investing abroad without regulatory clearance, which violates FEMA regulations.

What it means for you

NBFCs cannot proceed with overseas investments without explicit RBI approval. Non-compliance invites penalties under FEMA. Lenders must ensure their overseas investment proposals are cleared by the concerned Regional Office before execution.

What you must do

Who it affects

All Non-Banking Financial Companies (NBFCs), NBFCs planning joint ventures or wholly owned subsidiaries abroad, Compliance teams of NBFCs

❓ Common questions

What happens if an NBFC makes an overseas investment without RBI's NoC?

It is a violation of FEMA 2004 and attracts penal provisions as per RBI regulations.

Which RBI office should we approach for the NoC?

The Regional Office of the Department of Non-Banking Supervision in whose jurisdiction your NBFC's head office is registered.

Are there any restrictions on the type of overseas activities NBFCs can invest in?

Yes, NBFCs cannot make direct investment in a foreign entity engaged in activities not approved under FEMA.

📜 Read the original circular — full text as issued by RBI
RBI/2009-10/442 DNBS (PD).CC. No.173/03.10.01 /2009-10 May 03, 2010 All Non-Banking Financial Companies Dear Sir, Overseas Investment by NBFCs- No Objection (NoC) from DNBS, RBI Please refer to Regulation No. 7 of the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) (Amendment) Regulations, 2004, dated July 07, 2004, in terms of which an Indian party requires prior approval of the concerned regulatory authorities both in India and abroad, to make an investment in an entity outside India engaged in financial services activities. Further in terms of para B.5.3 of the Master Circular on Direct Investment in Joint Venture (JV)/Wholly owned subsidiary (WOS) abroad dated July 01, 2009 issued by Foreign Exchange Department, RBI, regulated entities in the financial sector making investments in any activity overseas are required to comply with the above regulation. 2.     Instances have been observed where NBFCs have made overseas investments without regulatory clearance of the Department of Non-Banking Supervision, Reserve Bank of India. Any investments made by NBFCs without regulatory clearance is a violation of FEMA 2004 and attracts penal provisions. 3.      In this regard, it is emphasised that all NBFCs desirous of making any overseas investment must obtain 'No Objection' (NoC) of the Department of Non-Banking Supervision of RBI before making such investment, from the Regional Office in whose jurisdiction the head office of the company is registered. 4.      Applications in this regard shall clearly state the activities intended to be undertaken by the overseas entity. NBFCs may also note that in terms of the Regulations ibid, they are not permitted to make direct investment in a foreign entity engaged in activities not approved under FEMA. Yours sincerely, (Uma Subramaniam) Chief General Manager-In-Charge
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2009-10/442 · issued 03 May 2010. The plain-English explanation above is BankPulse’s own independent summary.
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Who does what — compliance checklist
💻 IT / Systems
  • Submit application for NoC to the Regional Office where your NBFC's head office is registered before any overseas investment.
  • Clearly state the intended activities of the overseas entity in the application.
📜 Compliance
  • Verify that the overseas investment activity is permitted under FEMA regulations.
  • Ensure compliance with FEMA 2004 and related master circulars to avoid penal action.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template

Example: if you are an IT/Systems lead at a bank this circular applies to (All Non-Banking Financial Companies (NBFCs), NBFCs planning joint ventures or wholly owned subsidiaries abroad, Compliance teams of NBFCs), your first concrete step on “NBFCs must get RBI NoC before overseas investments” is: “Submit application for NoC to the Regional Office where your NBFC's head office is registered before any overseas investment.” (RBI issued this 03 May 2010).

  1. Circular: RBI/2009-10/442 -- NBFCs must get RBI NoC before overseas investments
  2. Issued: 03 May 2010
  3. Action required: Submit application for NoC to the Regional Office where your NBFC's head office is registered before any overseas investment.
  4. Action required: Clearly state the intended activities of the overseas entity in the application.
  5. Action required: Verify that the overseas investment activity is permitted under FEMA regulations.
  6. Action required: Ensure compliance with FEMA 2004 and related master circulars to avoid penal action.
  7. Owner: ____________ Target date: ____________
  8. Board/committee approval needed? Y / N
  9. Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.

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Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=5644&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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