What changed
Previously, RBI granted permission for such issuances on a case-to-case basis. Now, a general permission has been granted, removing the need for individual RBI approval, provided the scheme is court-approved and income tax authorities have no objection.
What it means for you
This simplifies the process for Indian companies to reward non-resident shareholders with bonus non-convertible/redeemable instruments. Banks must ensure clients comply with the new general permission and continue to follow existing FDI rules for other instruments like convertible preference shares.
What you must do
- Update internal procedures to recognize the new general permission for bonus non-convertible/redeemable preference shares or debentures to non-residents.
- Advise corporate clients that they no longer need case-by-case RBI approval for such issuances, but must have court approval and income tax no-objection.
- Remind clients that other instruments (e.g., convertible preference shares) remain under existing FDI circulars.
- Ensure compliance with FEMA regulations and report any transactions as per extant guidelines.
Who it affects
All Category-I Authorised Dealer banks, Indian companies issuing bonus shares/debentures to non-resident shareholders, Non-resident shareholders including ADR/GDR depositories
What types of instruments are covered under this general permission?
Only non-convertible/redeemable preference shares or debentures issued as bonus from general reserves under a court-approved scheme, with income tax no-objection.
Does this change the rules for convertible preference shares or debentures?
No. Convertible preference shares and convertible debentures (except non-convertible/redeemable ones) continue to be governed by earlier FDI circulars.
Do banks need to report these issuances to RBI?
The circular does not specify new reporting requirements; banks should follow existing FEMA reporting norms and advise clients accordingly.