The Reserve Bank of India, which has been holding back applications of several foreign venture capital funds (VCFs) for a few years, is slowly opening the doors to these investors — a decision which could be partly driven by the dollar shortage following the FII outflow. During the last fortnight, the central bank has cleared proposals of as many as 10 foreign VCFs which are adequately capitalised. Many VCFs were setting up entities in Mauritius with only a few thousand dollars as the overseas investors in the funds were reluctant to park the money in Mauritius before the regulatory clearance. This was unacceptable to RBI. Indeed, RBI had returned more than 16 foreign VCF applications to Sebi citing ‘under-capitalisation’ as the reason. After this, several foreign VC funds began capitalising the investment company before approaching the financial sector regulators. Sources said Sebi has already issued the in-principle approval to 10 applicants. However, while clearing the cases, RBI has inserted a new clause, which restricts investments by these foreign funds to certain sectors, similar to those prescribed under the Income Tax Act for availing of a tax pass-through for Sebi-registered VCFs. […]