{"id":4063,"date":"2021-04-12T08:52:00","date_gmt":"2021-04-12T08:52:00","guid":{"rendered":"https:\/\/swaritadvisors.com\/blog\/?p=4063"},"modified":"2021-04-12T08:56:13","modified_gmt":"2021-04-12T08:56:13","slug":"foreign-investment-criteria-for-nbfcs","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/blog\/foreign-investment-criteria-for-nbfcs\/","title":{"rendered":"A Comprehensive Analysis on Foreign Investment Criteria for NBFCs"},"content":{"rendered":"\n<p class=\"has-drop-cap\">The\nprovisions of foreign exchange are controlled by FEMA, 2000, and the operations\nof Non-Banking Financial Companies (NBFCs) are regulated by the RBI (Reserve\nBank of India) within the context of the <strong><em>RBI Regulation Act, 1934<\/em><\/strong>. 100% FDI\n(Foreign Direct Investment) is allowed in NBFCs subject to the least\ncapitalization norms as issued by the Government. NBFCs and companies make\nforeign investments by taking FDI, loans, etc. In this blog, we are going to\ndiscuss foreign investment criteria for NBFCs.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3aa3676e2a9\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3aa3676e2a9\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/blog\/foreign-investment-criteria-for-nbfcs\/#What_is_an_NBFC\" title=\"What\nis an NBFC?\">What\nis an NBFC?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/blog\/foreign-investment-criteria-for-nbfcs\/#Why_is_it_essential_to_take_Loans_or_Foreign_Investments_for_NBFCs\" title=\"Why\nis it essential to take Loans or Foreign Investments for NBFCs?\">Why\nis it essential to take Loans or Foreign Investments for NBFCs?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/blog\/foreign-investment-criteria-for-nbfcs\/#NBFC_and_Foreign_Loans_%E2%80%93_Foreign_Investment_Criteria_for_NBFCs\" title=\"NBFC\nand Foreign Loans &#8211; Foreign Investment Criteria for NBFCs\">NBFC\nand Foreign Loans &#8211; Foreign Investment Criteria for NBFCs<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/blog\/foreign-investment-criteria-for-nbfcs\/#Interest_and_Maturity_Period\" title=\"Interest\nand Maturity Period\">Interest\nand Maturity Period<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/swaritadvisors.com\/blog\/foreign-investment-criteria-for-nbfcs\/#What_is_the_Process_to_take_Foreign_Loan\" title=\"What\nis the Process to take Foreign Loan?\">What\nis the Process to take Foreign Loan?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/swaritadvisors.com\/blog\/foreign-investment-criteria-for-nbfcs\/#Foreign_Direct_Investment_Policy_for_NBFC\" title=\"Foreign\nDirect Investment Policy for NBFC\">Foreign\nDirect Investment Policy for NBFC<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/swaritadvisors.com\/blog\/foreign-investment-criteria-for-nbfcs\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_an_NBFC\"><\/span><strong>What\nis an NBFC?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Before\nwe move into the foreign investment criteria for NBFCs, let us first understand\nthe meaning of NBFC. NBFC stands for Non-Banking Financial Company; it is an\norganization involved in providing financial support. The NBFCs offers various\nfinancial services such as advances or loans, equities, acquisition of shares,\nstocks, debt, insurance business, chit fund business, etc. buts doesn&#8217;t\ncomprise any institution whose primary business consists of industrial activity,\nagriculture activities, or sale, purchase or construction of fixed property. To\noperate such financial services, the company needs to obtain NBFC Registration\nCertificate from the Reserve Bank of India. Non-Banking Financial Companies are\nregistered as per the Companies Act, 2013.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Why_is_it_essential_to_take_Loans_or_Foreign_Investments_for_NBFCs\"><\/span><strong>Why\nis it essential to take Loans or Foreign Investments for NBFCs?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>A\nNon-Banking Financial Company (NBFC), unlike any other company, prefer taking\nloans or advances from foreign nations because they provide loans at a rate\nmuch lowers than Indian lenders. They are also able to invest more money\nbecause of a lower rate of interests. On the contrary, foreign investors are\nalso fascinated in the Indian market because India has a growing client base\nunlike any other country and hence they have more growth opportunities.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"NBFC_and_Foreign_Loans_%E2%80%93_Foreign_Investment_Criteria_for_NBFCs\"><\/span><strong>NBFC\nand Foreign Loans &#8211; Foreign Investment Criteria for NBFCs<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Loans\nfrom foreign companies are mentioned as ECB or External Commercial Borrowings.\nSuch loans could be attained from a foreign bank or financial companies.\nExternal Commercial Borrowings can also be acquired in the form of debenture,\npreference shares, and bonds. ECB will also consist of a loan from a foreign\nshareholder who owns at minimum 25% of the shares of the borrower company.<\/p>\n\n\n\n<p>Only in\nsome particular sectors, the Reserve Bank of India permits External Commercial\nBorrowings to be acquired after fulfilling essential requirements. There is a\nrequirement of complying with the procedural necessities to obtain foreign\nloans in an NBFC. While obtaining the loans, no RBI consent is required.<\/p>\n\n\n\n<p>As per\nsuch policies, NBFCs (Infrastructure Finance Company) involved in financing the\ninfrastructure sector are permitted to take ECBs from the certified lenders\nconsisting of foreign banks under the consent route.<\/p>\n\n\n\n<p>In Section15\nof FEMA, it is specified that anyone who infringes such laws will be\nresponsible for the fine, which is triple the amount involved. Moreover, the\ndefaulters are kept under examination by the Reserve Bank of India. Defaulters\ncan only avail of foreign loans under the approval route. If the violation of\nsuch rules continues, then the defaulter is responsible for a fine of Rs.\n5000\/day.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Interest_and_Maturity_Period\"><\/span><strong>Interest\nand Maturity Period<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Concerning\nthe ECB, there are some rules &amp; regulations stated in the Foreign Exchange\nManagement Regulation. There are some detailed rules stated concerning the\ninterest amount to be paid and the maturity period. The cost of External\nCommercial Borrowings consists of the interest charged by the bank, other fees\nand expenses paid in foreign loans. It should be within the limit, which is\ncalculated with respect to a reference rate called the <strong><em>London Interbank Offered Rate\n(LIBOR)<\/em><\/strong>. <\/p>\n\n\n\n<ul><li>For a loan whose usual maturity period is 3 to 5\nyears and its rate of interest would be 3.5% over six months the LIBOR;<\/li><li>For a loan that will be matured after five\nyears, its rate of interest would be plus 5% over the six month LIBOR.<\/li><\/ul>\n\n\n\n<p><strong>Are Indian Companies Entitled to Grant Loan to NRI\/IPO Employees? <\/strong><\/p>\n\n\n\n<p>Yes,\nany company which is registered in India can provide loan to IPO or NRI\nemployees in India Rupees if:<\/p>\n\n\n\n<ul><li>The amount of loan for personal purpose only\nconsisting purchase of housing property in India;<\/li><li>The lender should make sure that the borrower\ndoesn&#8217;t use the loan amount for purposes that are prohibited by the Reserve\nBank of India;<\/li><li>The loan must be issued as per the <strong><em>Staff\nWelfare Schemer of Housing Loan Scheme<\/em><\/strong> and other appropriate\ncircumstances;<\/li><li>The repayment of the loan must be done in the\nform of allowance or through the account of the borrower;<\/li><li>The amount of the loan must be credited to the\nNRO account of the borrower.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_Process_to_take_Foreign_Loan\"><\/span><strong>What\nis the Process to take Foreign Loan?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The\nNon-Banking Financial Companies who wish to take foreign loan requires to\nsubmit <strong><em>Form 83<\/em><\/strong> to the certified dealer bank to obtain the <strong><em>LRN\n(Loan Registration Number)<\/em><\/strong>. This number should be certified by a CA or\nCS. Then the certified dealer bank forwards the form to the Department of\nStatistics and Information Management of the Reserve Bank of India (RBI). The\nloan is issued after the NBFC receive the Loan Registration Number.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Foreign_Direct_Investment_Policy_for_NBFC\"><\/span><strong>Foreign\nDirect Investment Policy for NBFC<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In NBFC, foreign investment is allowed under the automatic route accordingly to the FDI Policy. Under such route, before making the suggested investment, there is no necessity of approval of RBI or FIPB (Foreign Investment Promotion Board). Under the route, up to 100% of foreign investment is permitted without the earlier approval of the foreign investment promotion board. Every foreign transaction is needed to be routed only through companies licensed by the <strong>Reserve Bank of India<\/strong><sup><a href=\"https:\/\/www.rbi.org.in\/\" class=\"text-primary\"><strong>[1]<\/strong><\/a><\/sup>as per Section 10 of FEMA.<\/p>\n\n\n\n<p><strong><em>NRI or\nFDI investments are permitted under automatic route only in the 18 NBFC\nactivities as mentioned below:<\/em><\/strong><\/p>\n\n\n\n<ul><li>Merchant banking;<\/li><li>Underwriting;<\/li><li>Portfolio management services;<\/li><li>Investment advisory services; <\/li><li>Financial consultancy;<\/li><li>Stockbroking;<\/li><li>Asset management;<\/li><li>Venture capital;<\/li><li>Custodial services;<\/li><li>Rural credit;<\/li><li>Microcredit;<\/li><li>Money changing business;<\/li><li>Credit card business;<\/li><li>Forex broking;<\/li><li>Housing finance;<\/li><li>Leasing and finance;<\/li><li>Credit raising agencies;<\/li><li>Factoring.<\/li><\/ul>\n\n\n\n<p><strong><em>Non-fund\nbased activities:<\/em><\/strong><\/p>\n\n\n\n<ul><li>Credit Rating Agencies;<\/li><li>Forex Broking;<\/li><li>Investment Advisory Services;<\/li><li>Money Changing Business;<\/li><li>Financial Consultancy.<\/li><\/ul>\n\n\n\n<p>In such\nactivities, foreign investment in non-banking sectors is allowed under the\nautomatic route subject to compliance with the least capitalization standards.<\/p>\n\n\n\n<p>After <a href=\"https:\/\/swaritadvisors.com\/nbfc-registration\" class=\" text-primary\"><strong>NBFC Registration<\/strong><\/a> with the essential capital under the FEMA, succeeding diversification either through the present company or through downstream Non-Banking Financial Companies could be commenced without any extra authorization.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span><strong>Conclusion<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Now NBFCs can take loans from other countries. For that, they need to comply with the procedural necessities. They don\u2019t need to take permission from the Reserve Bank of India. Foreign investments are permitted under automatic route only in the 18 NBFC activities, as we mentioned above in this article. Moreover, the Non-Banking Financial Companies can take ECB under the consent route. <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/blog\/investment-and-credit-company\/\">All You Should Know about Investment and Credit Company\n<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The provisions of foreign exchange are controlled by FEMA, 2000, and the operations of Non-Banking Financial Companies (NBFCs) are regulated by the RBI (Reserve Bank of India) within the context of the RBI Regulation Act, 1934. 100% FDI (Foreign Direct Investment) is allowed in NBFCs subject to the least capitalization norms as issued by the [&hellip;]<\/p>\n","protected":false},"author":6,"featured_media":4067,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[58],"tags":[573],"acf":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/4063"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/comments?post=4063"}],"version-history":[{"count":16,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/4063\/revisions"}],"predecessor-version":[{"id":4080,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/4063\/revisions\/4080"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media\/4067"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media?parent=4063"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/categories?post=4063"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/tags?post=4063"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}