RBI Sanctions Easy Entrance Of Foreign Capital For Start-Ups
The Reserve Bank of India (RBI) has sanctioned various steps to upgrade ease of doing business for start-ups through along with easier entry of foreign capital and by authorizing smoother transfer of ownership in its sixth bi-monthly monetary policy statement. RBI Governor Raghuram Rajan said that he wants to create a framework in order to allure foreign venture capital (VC) and the central bank wants to clarify the process.
“We are supporting the start-up process by making it easier to raise (capital), often from abroad, but also simplify the compliance with regulations, including putting forms online,” Rajan said during the post-policy press conference on Tuesday.
The Ease Of Cross-Border Transactions
In order to make the cross-border transactions easier, RBI has proposed (in consultation with the government of India) that in order to transfer the ownership of start-up, the permitting receipt of the consideration amount on deferred basis can be done. It has also suggested to authorize escrow arrangement or indemnity arrangement up to a period of 18 months.
In addition to this, RBI has also submitted (in consultation with the government) to authorize start-up access to rupee loans under the external commercial borrowings framework with relaxation of efficient lenders. They are also monitoring at issuing fresh Foreign Direct Investment (FDI) instruments like convertible notes by start-ups.
Harish H V, partner, Grant Thornton India LLP, said these measures are for helping start-ups in their operations and fundraising. “We look forward to further relaxations around convertible notes as promised. These steps, together with the start-up action plan and more initiatives expected from the ministry of corporate affairs and the Budget, should help the cause of the Stay In India and creating value in India… Every step counts.” he said.