What changed
Earlier, only Indian companies engaged solely in investing in other Indian companies could use internal accruals for downstream investments. Now, any Indian company can use internal accruals for downstream investments, subject to the conditions in clause 6(i) of the July 2013 circular. The requirement to bring in funds from abroad (not domestic borrowings) remains unchanged.
What it means for you
This gives Indian companies more flexibility to fund downstream investments using their own retained earnings, without needing to route funds from abroad for every such investment. Banks must ensure that downstream investments still comply with the foreign funding condition—domestic borrowings are not allowed for this purpose. Operating subsidiaries can still raise debt locally.
What you must do
- Update internal compliance checklists to reflect that any Indian company can now use internal accruals for downstream investments, not just investment-holding companies.
- Advise customers that the foreign funding condition (no domestic borrowings for downstream investment) still applies; only internal accruals are an exception.
- Ensure downstream investment proposals are reviewed against the revised condition (d) in Annex to this circular and clause 6(i) of the July 2013 circular.
- Communicate the change to your AD Category-I bank's customers and constituents as directed.
Who it affects
Indian companies making downstream investments, Foreign investors in Indian companies, AD Category-I banks handling foreign investment transactions
Can an Indian company now use domestic borrowings for downstream investments?
No. The condition that downstream investments must be funded from abroad (not domestic borrowings) remains unchanged. Only internal accruals are now permissible for any Indian company, not just investment-holding companies.
Does this circular affect the definition of 'owned and controlled by resident entity'?
No. The circular only amends condition (d) in para 6(ii) of the Annex to the July 2013 circular. All other conditions, including ownership and control definitions, remain unchanged.