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
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.