RBI bars FDI via conversion of imported second-hand machinery
No longer current — replaced by A.P. (DIR Series) Circular No. 19 RBI/2025-26/192
Source: Reserve Bank of India · RBI/2011-12/541 · issued 08 May 2012 · ~2 min read
Quick answerRBI has stopped allowing FDI through conversion of imported second-hand machinery into equity shares under the Government route, effective May 8, 2012. Only new, state-of-the-art, green, clean, and energy-efficient machinery can now be used for such conversions.
What changed
Previously, AD Category-I banks could facilitate FDI by allowing conversion of imported capital goods, including second-hand machinery, into equity shares under the Government route. The RBI has now excluded second-hand machinery from this provision to incentivize the use of modern, energy-efficient technology. All other terms from earlier circulars remain unchanged.
What it means for you
Banks must now ensure that any FDI through conversion of imported machinery into equity is only for new, high-tech, and environmentally compliant equipment. This tightens the eligibility for such investments, potentially reducing the inflow of FDI linked to older machinery. Lenders should update their due diligence processes to verify machinery type and compliance with green standards.
Historical instruction — do not use for current compliance. This is what was required at the time; it no longer reflects current RBI requirements. If no replacement rule is linked above, that only means none is recorded on our register yet — it does not prove no later applicable rule exists. Confirm on the official RBI source below.
What banks were required to do at the time
Update internal FDI processing guidelines to exclude second-hand machinery from equity conversion under the Government route.
Train AD Category-I bank staff to verify that imported machinery for FDI conversion is new, state-of-the-art, and energy-efficient.
Inform customers and constituents about this change to avoid non-compliant applications.
Monitor upcoming amendments to FEMA regulations for formal notification of this change.
Who it affects
AD Category-I banks handling FDI transactions, Foreign investors using the Government route for FDI, Indian companies importing machinery for equity conversion
❓ Common questions
Regulatory timeline
Stated effective dateeffective May 8, 2012
Decoded by BankPulse2026-06-18 20:35 IST
Superseded by — A.P. (DIR Series) Circular No. 19 RBI/2025-26/192
Status change: superseded03 Aug 2026, 04:00 IST
Built from our lineage records — each fact carries its provenance; missing history simply is not shown (never guessed).
Can we still process FDI for second-hand machinery if it was already in the pipeline before May 8, 2012?
The circular does not specify a grandfathering clause. It applies from the date of issue, so pending applications involving second-hand machinery should be reviewed for compliance with the new restriction.
What qualifies as 'state-of-the-art' and 'green' machinery for this purpose?
The RBI does not define these terms in this circular. Banks should rely on international standards and certifications to assess compliance, and may need to seek legal or technical advice for borderline cases.
Does this circular affect FDI through the automatic route?
No, this circular specifically addresses the Government route for FDI via conversion of imported capital goods. The automatic route remains unaffected unless separately amended.
📜 This document’s life story (1 recorded event, each backed by RBI’s own words)
📜 Read the original circular — full text as issued by RBI
RBI/2011-12/541
A. P. (DIR Series) Circular No.120
May 08, 2012
To
All Category-I Authorised Dealer Banks
Madam / Sir,
Foreign Direct Investment (FDI) in India - Issue of equity shares under the
FDI scheme allowed under the Government route
Attention of Authorised Dealers Category – I (AD Category - I) banks is invited to the A.P. (DIR Series) Circular No. 74 dated June 30, 2011 , and A.P. (DIR Series) Circular No. 55 dated December 09, 2011 , on issue of equity shares/ preference shares under the Government route by conversion of import of capital goods / machineries / equipments (including second-hand machineries) and pre-operative / pre-incorporation expenses (including payments of rent, etc.), subject to the terms and conditions stated therein.
2. With a view to incentivising use of machinery embodying the latest state-of-the-art technology, compliant with international standards, in terms of being green, clean and energy efficient, it has now been decided to exclude conversion of imported second-hand machinery from the purview of this provision.
3. All the other instructions contained in the above referred A.P. (DIR Series) Circulars shall remain unchanged.
4. AD Category - I banks may bring the contents of the circular to the notice of their customers/constituents concerned.
5. Necessary amendments to Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 ( Notification No. FEMA 20/2000-RB dated May 3, 2000 ) are being notified separately.
6. The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.
Yours faithfully,
(Rudra Narayan Kar)
Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2011-12/541 · issued 08 May 2012. The plain-English explanation above is BankPulse’s own independent summary.
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BankPulse Compliance Evidence Pack — generated 03 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=7190&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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