Master Direction - Establishment of Branch Office (BO)/ Liaison Office (LO)/ Project Office (PO) or any other place of business in India by foreign entities (Updated as on May 18, 2021)
UR
- Applies toBanks that handle foreign money
- StatusIn force
- IssuedJan 04, 2016
- Amendmentsnone tracked
- Length35 points in 4 sections · 4 min read
The four dates on this rule
- PublishedJan 04, 2016The day RBI put this document out. This is the same day as the Issued date on this rule.
- Starts to applyNot statedNot stated separately in this document. Read the rule itself before you assume a start date.
- Time to get readyNot statedCannot be worked out until the day it starts to apply is known.
- Last date to actNot statedNo date to act by was found in this document. Other dates may sit inside single paragraphs.
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What it says
How firm is each point
Stated by RBI — RBI’s own paragraph says this. We have only made it plainer.
Our reading — BankPulse read RBI’s paragraph and shortened it. The paragraph is the authority, not this line.
Needs judgement — RBI leaves this to the bank to settle, so nobody can give you a fixed number here.
Can be read two ways
A point marked this way sits on an RBI paragraph that can honestly be read two ways. Our own sentence takes one of the two. BankPulse does not choose for you: read RBI’s own paragraph, at the number printed on the point, before you act on it.
Two ways — firm, or the usual course. RBI’s paragraph softens the duty with a hedging word instead of stating it flat. One reading: It is a firm rule, and only a rare case RBI would accept sits outside it. The other: It is the usual course, and a bank may depart from it for its own recorded reasons.
Must know
1. Some countries need central approval
Applicants from Pakistan and some other countries need the government's own approval.
2. Four sectors need extra approval
Defence, telecom, private security and broadcasting businesses need the government's own approval too.
3. Branch office track record
A branch office needs a strong profit record and net worth of at least $100,000.
4. Liaison office track record
A liaison office needs a strong profit record and net worth of at least $50,000.
5. Weak applicant needs a guarantor
A financially weak applicant may submit a comfort letter from its own parent company.
6. Liaison office validity period
A liaison office is approved for three years, or two years for NBFCs and construction firms.
7. Project office lasts the project
A project office is approved only for as long as the project runs.
8. Open within six months
The office must open within six months of the approval letter, or the approval lapses.
9. Branches allowed in SEZs
A branch office may open in a Special Economic Zone for manufacturing or service activities.
10. Liaison office gets one account
A liaison office may hold only one bank account without RBI's own permission.
11. Pakistan needs account approval
An entity from Pakistan needs RBI's own prior approval to open a bank account for its project office.
12. Project office gets two accounts
A project office may open two foreign currency accounts, usually one in US dollars and one in the awarder's currency.
13. Report problems to RBI immediately
Any adverse finding in the certificate must reach RBI at once.
14. No second extension for some
NBFC and construction-sector liaison offices get no further extension at all.
15. Some applicants register with police
Applicants from eight named countries must register with the state police.
16. Justify a fifth office
A fifth office beyond one per zone needs RBI's own prior approval.
17. No credit facilities for LOs
The AD bank may extend credit facilities to branch and project offices, never to liaison offices.
18. Clear all dues before closing
Before closing, the office must show every local liability is paid or provided for.
19. No income left stranded abroad
Closing the office must confirm no foreign income was left unrepatriated to India.
20. Sell assets only when closing
Assets may be sold to a new Indian company only when the office is closing down.
21. Assets capped at book value
Assets transferred to a new Indian company cannot be sold above their book value.
22. One designated bank, always
Every office must transact through only one designated AD bank.
23. Lease capped at five years
Leased office space cannot be taken for more than five years.
24. Deposit capped at six months
Surplus funds may go into a term deposit for up to six months only.
25. Approval cannot be transferred
One foreign entity's approval cannot pass to a different entity.
Do it
1. Apply using Form FNC
The application must be made in Form FNC to a chosen AD bank.
2. One extension of six months
The AD bank may allow one further six months to open the office.
3. File an activity certificate yearly
Every office must file an Annual Activity Certificate as at 31 March each year.
4. One certificate for many offices
With several branches or liaison offices, the nodal office files one combined certificate for all of them.
5. Liaison offices get three years
The AD bank may extend a liaison office's approval by three more years.
6. Moving city needs approval
Moving a branch or liaison office to another city needs the AD bank's approval first.
7. Branch may remit its profit
A branch office may send its after-tax profit abroad, backed by audited accounts.
8. Project office interim remittance
A project office may send money home before winding up, if the AD bank is satisfied it is genuine.
9. Get a PAN and report
Every office must get a PAN and report it in its activity certificate.
Background
1. RBI issues a number first
RBI must allot a Unique Identification Number before the bank's approval letter goes out.