RBI to lend support to Start-up India

Mumbai: Reserve Bank of India (RBI) in its sixth bi-monthly monetary policy statement said keeping with government's Start-up India initiative, it will take steps to ease doing business and contribute to an ecosystem that is conducive for growth of start-ups. RBI governor Raghuram Rajan said that the central bank wants to simplify the process and will create an enabling framework for receiving foreign venture capital.

"We are supporting start-up process by making it easier to raise, often from abroad, but also simplify the compliance with regulations including putting forms online so that they don't have to put from pillar to post," Rajan told the media during the press conference.

In its regulatory relaxations for easing cross-border transaction announced today, RBI proposed (in consultation with Government of India) that in case of transfer of ownership of a start-up enterprises, permitting receipt of the consideration amount on a deferred basis could be done. They also propose to enable escrow arrangement or indemnity arrangement up to a period of 18 months.

In addition, RBI is also looking at permitting start-up enterprises to access rupee loans under external commercial borrowing framework with relaxations in respect of eligible lenders. It is also looking at permitting issuance of innovative FDI instruments like convertible notes by start-up enterprises. Further, issue of shares without cash payment through sweat equity or against any legitimate payment owed by the company remittance of which does not require any permission under FEMA is being proposed.

RBI said that the aim is to enable start-up enterprises, irrespective of the sector in which they are engaged, to receive foreign venture capital investment and also explicitly enabling transfer of shares from foreign Venture Capital investors to other residents or non-residents.

It has also proposed simplifying the process for dealing with delayed reporting of Foreign Direct Investment (FDI) related transaction by building a penalty structure into the regulations itself. The notifications/circulars under Foreign Exchange Management Act (FEMA), wherever necessary, will be issued shortly.

The regulator said that electronic reporting of investment and subsequent transactions will be made on e-Biz platform only. Here, submission of physical forms will be discontinued with effect from February 8, 2016.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.