FDI via equity shares: second-hand machinery imports excluded from government route
Current · Source: Reserve Bank of India · RBI/2012-13/375 · issued 10 Jan 2013 · ~2 min read
Quick answerRBI has revised FDI rules to exclude second-hand machinery imports from the government route for equity share issuance. Only new capital goods, machinery, and equipment qualify for conversion into equity/preference shares under this scheme.
The rule, in the simplest words
New machinery imports can be converted into equity shares under the government route.
Second-hand machinery imports are excluded from the government route for equity share issuance.
Banks must verify the nature of imported goods to ensure compliance with the revised condition.
How it plays out — a real example
Rahul, a foreign investment officer in Mumbai, reviews an application from a client who wants to import second-hand machinery for conversion into equity shares. He checks the revised RBI rule and advises the client that only new machinery imports qualify for this scheme. Rahul ensures that the client understands the revised condition and updates the internal FDI processing guidelines to reject the application.
What changed
The earlier condition allowed import of capital goods/machinery/equipment including second-hand machinery for conversion into equity shares under the government route. The revised condition explicitly excludes second-hand machinery from this facility. All other terms from the June 30, 2011 and December 9, 2011 circulars remain unchanged.
What it means for you
Banks must now ensure that any application for issuing equity/preference shares against import of capital goods under the government route involves only new machinery. Second-hand machinery imports can no longer be converted into equity under this scheme. This tightens the FDI framework and may require additional due diligence by AD Category-I banks to verify the nature of imported goods.
What you must do
Update internal FDI processing guidelines to reject equity issuance applications involving second-hand machinery imports under the government route.
Advise customers that only new capital goods, machinery, and equipment qualify for conversion into equity/preference shares under this scheme.
Ensure independent valuation of imported new capital goods by a third party, preferably from the country of import, along with customs valuation documents.
Review existing pending applications to ensure compliance with the revised condition.
Who it affects
AD Category-I banks, Foreign investors using the government route for FDI, Indian companies importing capital goods for equity issuance
❓ Common questions
Does this circular affect all FDI equity issuance under the government route?
No, it only amends the condition for equity/preference shares issued against import of capital goods. Other conditions from the earlier circulars remain unchanged.
What documentation is required for the valuation of new capital goods?
An independent valuation by a third party entity, preferably from the country of import, along with customs authority documents certifying fair value assessment.
Are second-hand machinery imports completely banned under FDI?
No, they are only excluded from the specific scheme of issuing equity shares under the government route via conversion of import of capital goods. Other FDI routes may still apply.
📜 Read the original circular — full text as issued by RBI
RBI/2012-13/375
A. P. (DIR Series) Circular No.74
January 10, 2013
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 Para 3 of A.P. (DIR Series) Circular No. 74 dated June 30, 2011 read with A.P. (DIR Series) Circular No. 55 dated December 9, 2011 , allowing thereby issue of equity shares/ preference shares under the Government route by conversion of import of capital goods, etc., subject to terms and conditions stated therein.
2. On review of the policy, it has now been decided to amend certain conditions in the aforesaid para. The amended conditions are given in the Annex .
3. All the other conditions contained in the A.P. (DIR Series) Circulars No. 74 dated June 30, 2011 and No. 55 dated December 9, 2011, 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 ) have been notified vide Notification No. FEMA.229/2012-RB dated April 23, 2012 and Notification No. FEMA.242/2012-RBdated October 19, 2012
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
Annex
[A. P. (DIR Series) Circular No.
dated January, 2013]
c.f. A.P.(DIR Series) Circular No. 74 dated June 30, 2011
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2012-13/375 · issued 10 Jan 2013. The plain-English explanation above is BankPulse’s own independent summary.
Example: if you are an IT/Systems lead at a bank this circular applies to (AD Category-I banks, Foreign investors using the government route for FDI, Indian companies importing capital goods for equity issuance), your first concrete step on “FDI via equity shares: second-hand machinery imports excluded from government route” is: “Update internal FDI processing guidelines to reject equity issuance applications involving second-hand machinery imports under the government route.” (RBI issued this 10 Jan 2013).
Circular: RBI/2012-13/375 -- FDI via equity shares: second-hand machinery imports excluded from government route
Issued: 10 Jan 2013
Action required: Update internal FDI processing guidelines to reject equity issuance applications involving second-hand machinery imports under the government route.
Action required: Advise customers that only new capital goods, machinery, and equipment qualify for conversion into equity/preference shares under this scheme.
Action required: Ensure independent valuation of imported new capital goods by a third party, preferably from the country of import, along with customs valuation documents.
Action required: Review existing pending applications to ensure compliance with the revised condition.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
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.
💬 Banker Discussion
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
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=7802&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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