RBI Introduces FEMA Regulations for Direct Listing on International Exchanges

The Reserve Bank of India (RBI) has unveiled regulations under the Foreign Exchange Management Act (FEMA) to facilitate the direct listing of Indian companies on international stock exchanges. These regulations aim to streamline foreign exchange transactions and reporting procedures, offering companies greater flexibility in utilizing funds raised through overseas listings.

Key Regulations

 Mode of Payment and Reporting

The regulations stipulate that proceeds from the purchase or subscription of equity shares of Indian companies listed on international exchanges must either be remitted to an Indian bank account or deposited in a foreign currency account of the Indian company. Sale proceeds, net of taxes, can be remitted abroad or credited to the bank account of the permissible holder. Reporting of foreign exchange transactions will be conducted by the investee Indian company through an authorized dealer. If an Foreign Portfolio Investor (FPI) invests through a stock exchange, the authorized dealer will report to the RBI.

 Foreign Currency Accounts

For residents in India raising funds through External Commercial Borrowings (ECB), American Depository Receipts (ADRs), Global Depository Receipts (GDRs), or direct listing of equity shares on international exchanges, unutilized or repatriated funds will be held in foreign currency accounts with a bank outside India.

Expert Insights

• Manan Lahoty, Partner, IndusLaw: These changes eliminate procedural hurdles and facilitate efficient fund utilization for overseas acquisitions, expansions, and other forex purposes.
• Nilesh Tribhuvann, Managing Partner, White & Brief – Advocates & Solicitors: The regulations offer companies flexibility in fund management, aligning with their operational needs and investment strategies. Enhanced reporting requirements ensure transparency and compliance, supporting India’s integration into the global market.

Broader Implications

These regulations, building upon the Finance Ministry’s scheme for direct listing of equity shares on international exchanges, signify India’s commitment to fostering a conducive environment for global competitiveness and attracting foreign investments. Aligning corporate strategies with these regulations will enable companies to leverage international finance opportunities effectively and contribute to India’s economic growth on a global scale.