Clarification by the RBI on funds raised through direct listing of equity shares of Indian companies on international exchanges - Amendment to the Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations, 2015

INTRODUCTION

The Reserve Bank of India in exercise of its powers conferred by Section 9 and Section 47(2)(e) of the Foreign Exchange Management Act, 1999 has issued the Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) (Amendment) Regulations, 2024 (the “2024 Amendment”) vide notification No. FEMA. 10(R)(3)/2024-RB dated April 23, 2024[i], amending the provisions of the Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations, 2015[ii] (the “Principal Regulations”). The 2024 Amendment has introduced an amendment in Regulation 5(F)(1) (Other Cases) of the Principal Regulations, pertaining to the opening, holding and maintaining a foreign currency account outside India.

KEY HIGHLIGHTS

The key highlight of the 2024 Amendment is as follows:

Existing Position:

Under the Principal Regulations, it was provided under Regulation 5(F)(1) (Other Cases) [iii] that subject to compliance with the conditions pertaining to raising of external commercial borrowings (“ECBs”) or raising of resources through American depository receipts (“ADRs”) or global depository receipts (“GDRs”), the funds so raised may, pending their utilisation or repatriation to India, be held in deposits in foreign currency accounts with a bank outside India.

Amendment introduced through the 2024 Amendment:

Pursuant to the introduction of the 2024 Amendment, Regulation 5(F)(1) of the Principal Regulations are substituted as follows:

“Subject to compliance with the conditions in regard to raising of External Commercial Borrowings (ECB) or raising of resources through American Depository Receipts (ADRs) or Global Depository Receipts (GDRs) or through direct listing of equity shares of companies incorporated in India on International Exchanges, the funds so raised may, pending their utilisation or repatriation to India, be held in foreign currency accounts with a bank outside India.”

Thus, vide the 2024 Amendment there has been an inclusion of the listing of equity shares of companies incorporated in India on international stock exchanges as a method for raising funds of a company and the funds so raised shall be held in foreign currency accounts with a bank outside India, thereby removing the mandate of holding such funds by way of ‘deposits’.

CONCLUSION

The 2024 Amendment has been brought with an aim to provide clarity on the funds raised through the direct listing of equity shares of Indian companies on international exchanges and has sought to sync the same with the earlier amendment brought by the Ministry of Corporate Affairs (“MCA”) to the Companies (Listing of Equity Shares in Permissible Jurisdiction) Rules, 2024 and amendment brought by the Ministry of Finance, Department of Economic Affairs to the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 in order to facilitate the direct listing of shares of Indian Companies on international stock exchanges established in international financial services centres. Thus, vide the 2024 Amendment, funds raised via the direct listing of equity shares of companies incorporated in India on international exchanges, pending their utilisation or repatriation to India can be held in foreign currency accounts with a bank outside India.

[i] https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12674&Mode=0

[ii] https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=10261&Mode=0

[iii] The Principal Regulations were amended on June 1, 2016, vide GSR 570(E) dated June 1, 2016, and by virtue of that the sub-clause E was renumbered as ‘F’. Prior to renumbering, it read as ‘E’; https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=10444#f3