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RBI nod must for NBFCs to open subsidiaries abroad
June, 15th 2011

With an aim to regulate the credit system to the advantage of the country, the Reserve Bank of India (RBI) today said non-banking financial companies (NBFCs) cannot open subsidiaries or enter into joint ventures abroad without its permission.

"No NBFC shall open subsidiaries/joint ventures/ representative office abroad or shall make investment in any foreign entities without obtaining prior approval in writing from the RBI," the central bank said in a notification.

It said investments will be permitted only in those entities having their core activity regulated by a financial sector regulator in the host jurisdiction or country.

Besides, the aggregate overseas investment by NBFCs should not exceed 100% of their Net Owned Fund (NOF).

"The overseas investment in a single entity, including its step down subsidiaries, by way of equity or fund based commitment shall not be more than 15% of the NBFC's owned funds," the RBI said.

However, NBFCs will not be allowed to make investment in non-financial service sectors overseas.

Besides as a general policy, NBFCs would not be allowed to open a branch abroad.

For opening of a subsidiary abroad by the NBFC or entering into JV overseas, the parent NBFC would not be permitted to extend implicit or explicit guarantee to or on behalf of such subsidiaries.

The central bank said the directions, which have come into effect from today, to NBFCs is necessary for the purpose of enabling it to regulate the credit system to the advantage of the country.

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