What changed
This July 2013 master circular consolidates all prior instructions on NBFC overseas operations. It reiterates that NBFCs must get a No Objection from DNBS before any foreign investment or branch setup, and clarifies that direct investment in non-financial services or FEMA-prohibited activities is banned.
What it means for you
NBFCs face stricter compliance: any overseas expansion or investment now requires explicit DNBS clearance, not just FEMA approval. Violations can lead to penal action under FEMA. This ensures RBI oversight over financial sector outflows and prevents unauthorized foreign exposure.
What you must do
- Submit a No Objection application to your regional DNBS office before any overseas investment or branch setup.
- Clearly state the intended activities of the foreign entity in the application.
- Ensure the overseas activity is in financial services and not prohibited under FEMA.
- Review existing overseas investments for compliance with this circular and obtain retrospective NoC if needed.
Who it affects
All deposit-taking and non-deposit-taking NBFCs registered with RBI, NBFCs planning overseas branches, subsidiaries, joint ventures, or representative offices, NBFCs making direct investments in foreign financial services entities
What happens if an NBFC makes an overseas investment without RBI's No Objection?
It is a violation of FEMA 2004 and attracts penal provisions. The circular emphasizes that any investment without regulatory clearance from DNBS is illegal.
Can an NBFC invest in a foreign entity engaged in non-financial activities?
No. The circular explicitly states that investment in non-financial service sectors is not permitted. Direct investment in activities prohibited under FEMA or in sectoral funds is also banned.
Is prior approval needed for all types of overseas presence?
Yes. No NBFC shall open subsidiaries, joint ventures, representative offices abroad, or make investment in any foreign entities without obtaining prior written approval from RBI.