What changed
This master circular consolidates existing instructions on NBFC overseas investments. It reiterates that NBFCs must get prior NoC from DNBS in addition to FEMA clearance. It also clarifies that investments in non-financial sectors or prohibited activities are not permitted.
What it means for you
NBFCs cannot assume FEMA approval alone suffices; DNBS clearance is mandatory. This adds a layer of regulatory oversight, ensuring overseas entities align with NBFC's core financial activities. Non-compliance risks penal action under FEMA.
What you must do
- Submit application for NoC to the Regional Office of RBI in whose jurisdiction the head office of the company is registered before any overseas investment or expansion.
- Clearly state the intended activities of the overseas entity in the application.
- Ensure the overseas entity is engaged only in financial services, not prohibited or non-financial sectors.
- Verify compliance with both FEMA regulations and these DNBS directions.
- Maintain records of all approvals for regulatory audits.
Who it affects
All deposit-taking NBFCs, All non-deposit-taking NBFCs, NBFCs planning overseas branches, subsidiaries, joint ventures, or representative offices, NBFCs making any foreign investment
Do we need RBI approval if we already have FEMA clearance?
Yes. FEMA clearance is separate; you must also obtain a No Objection from DNBS before any overseas investment or expansion.
Can we invest in a foreign entity that is not in financial services?
No. Direct investment in non-financial service sectors is not permitted under these directions.
What happens if we invest abroad without DNBS approval?
It is a violation of FEMA 2004 and attracts penal provisions. RBI may take enforcement action.