6th August, 2012
Downstream investments made by a banking company incorporated in India, which is owned and/or controlled by non-residents/non-resident entities, on account of Corporate Debt Restructuring (CDR), or other loan restructuring mechanism, or in trading books, or for acquisition of shares due to defaults in loans, shall not count towards downstream investment, and thus shall not be construed as the indirect foreign investment of the non-resident investors of such banking company in India. A clarificatory note has been incorporated to this effect by the Department of Industrial Policy & Promotion (DIPP) in the Ministry of Commerce and Industry in its Press Note No. 2 (2012 series) issued on 31st July 2012.
The note adds that ‘strategic downstream investments’ i.e. investments by the banking companies (being owned and/or controlled by non-residents/non-resident entities) in their subsidiaries, joint ventures and associates, shall continue to be counted towards downstream investment.
Downstream investment is an indirect mechanism of FDI, whereby a company incorporated in India, which is owned and/or controlled by non-resident persons/entities (investing company), subscribes or acquires the shares of another Indian body corporate (subject company). A company is said to be owned by non-residents/non-resident entities if more than 50% of the capital in it is beneficially owned by such non-residents / non-resident entities; and a company is considered to be controlled by non-residents /non-resident entities if such non-residents/non-resident entities have the power to appoint a majority of directors in that company.
As per the FDI Policy released on 10th April this year, downstream investment by an Indian company is required to be in conformity with the sectoral conditions on entry route, conditionalities and caps, with regard to the sectors in which the subject company is operating.
The latest note implies that any strategic / willful investments made by an Indian banking company (being owned and/or controlled by non-residents/non-resident entities), shall be construed as downstream investments, whereas any compulsory investment made for the purpose of protection of its interest, during the course of its usual banking operations, shall not be construed as downstream investment.
Downstream investments made by a banking company incorporated in India, which is owned and/or controlled by non-residents/non-resident entities, on account of Corporate Debt Restructuring (CDR), or other loan restructuring mechanism, or in trading books, or for acquisition of shares due to defaults in loans, shall not count towards downstream investment, and thus shall not be construed as the indirect foreign investment of the non-resident investors of such banking company in India. A clarificatory note has been incorporated to this effect by the Department of Industrial Policy & Promotion (DIPP) in the Ministry of Commerce and Industry in its Press Note No. 2 (2012 series) issued on 31st July 2012.
The note adds that ‘strategic downstream investments’ i.e. investments by the banking companies (being owned and/or controlled by non-residents/non-resident entities) in their subsidiaries, joint ventures and associates, shall continue to be counted towards downstream investment.
Downstream investment is an indirect mechanism of FDI, whereby a company incorporated in India, which is owned and/or controlled by non-resident persons/entities (investing company), subscribes or acquires the shares of another Indian body corporate (subject company). A company is said to be owned by non-residents/non-resident entities if more than 50% of the capital in it is beneficially owned by such non-residents / non-resident entities; and a company is considered to be controlled by non-residents /non-resident entities if such non-residents/non-resident entities have the power to appoint a majority of directors in that company.
As per the FDI Policy released on 10th April this year, downstream investment by an Indian company is required to be in conformity with the sectoral conditions on entry route, conditionalities and caps, with regard to the sectors in which the subject company is operating.
The latest note implies that any strategic / willful investments made by an Indian banking company (being owned and/or controlled by non-residents/non-resident entities), shall be construed as downstream investments, whereas any compulsory investment made for the purpose of protection of its interest, during the course of its usual banking operations, shall not be construed as downstream investment.