Foreign venture capital investors (FVCI) waiting for an RBI approval for the past few weeks may finally get the nod to go ahead. The central bank is likely to start the process of approving pending FVCI applications.
More than 50 applications from foreign venture funds are currently pending with RBI. However, venture investors eyeing the real estate sector may still have to wait.
Of the 50 applications pending, at least 21 relate to realty. But the High-Level Co-ordination Committee on Financial Markets seems to be favourably inclined to other sectors. These applications have been lying with the RBI, despite Sebi vetting these as per the FVCI regulations. Sebi had raised this issue at a meeting recently.
The government has initiated a review of the FVCI regulations in the wake of concerns raised by the central bank. The meeting, which was chaired by RBI governor, favoured clearing these applications pending the review. A decision on realty investment would be taken later, as and when the new norms crystallise.
The review was undertaken after RBI took a more vigilant stand on FVCI investments flowing into real estate. This is mainly because foreign direct investments into real estate face a three-year lock-in, whereas FVCI investments don’t have to comply with such a rule.
They are also exempted from the takeover code and do not have to pay tax unlike their domestic counterparts who enjoy tax benefits only if they invest in select sectors. Most FVCIs, on the other hand, also do not have a permanent establishment and hence, do not need to pay tax here.
The new regulations, which will be formulated after an intense review of the current norms, will aim at providing a level-playing field for FVCIs and foreign venture capital funds. The main objective is to ensure capital actually flows into risky ventures.
Source: Economic Times