Previously, certain specific transactions required the prior approval of the RBI, and these included (i) transfers not compliant with RBI’s pricing norms, (ii) those that required prior approval of the Foreign Investment Promotion Board (FIPB), (iii) where the investee company was in the financial services sector and (iv) where the transfer was within the purview of the SEBI Takeover Regulations.
In the recent circular, the requirement for approval of the RBI in these cases has been done away with so long as the transfer is otherwise in accordance with the FDI policy. Where the pricing is not in accordance with the RBI regulations for transfer, transactions will nevertheless be permitted if the pricing follows the norms of other relevant regulators such as SEBI (for takeovers, public offerings, buybacks, etc.). As regards companies in the financial sector, no prior approval of the RBI is required if no-objection certificates are obtained from the sector regulators.
The effect of the new regime is that it not only liberalizes the procedural requirements for transfers between residents and non-residents making them far easier, but it also cedes RBI’s approval powers on pricing to regulators such as SEBI which also impose pricing norms on specific securities transactions.