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Firms investing abroad may face thorough scrutiny, says report

Firms investing abroad may face thorough scrutiny, says report

Firms investing abroad may face thorough scrutiny, says report
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By Pradeep Suresh  May 28, 2018 9:33:11 AM IST (Published)

The development comes after forensic audits of companies following bank defaults revealed how the ODI route was used to take money out of India.

RBI officials have indicated that only companies with a proven track record will be allowed to invest in overseas subsidiaries and joint ventures, reported The Economic Times.

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The development comes as such investments were misused to move capital and divert borrowed funds out of the country, ET reported on Monday.
According to the report, officials indicated towards this plan during a meeting held to discuss the rules on overseas direct investment (ODI) with advisers and legal experts. “Track record could mean at least past three years of profitability or average profitability. Probably, there could be other conditions like the minimum age of the company, absence of defaults on bank loans and any outstanding with the government,” a person present at the meeting was quoted in the report.
The development comes after forensic audits of companies following bank defaults revealed how the ODI route was used to take money out of India, the report said.
Many have responded to the move in a positive manner. "The question is, whether regulators have scrutinized these reports in the past. Many believe such an exercise could have preempted some of the fund diversions. The track record criterion existed in the past. It was done away with to encourage businesses. The investment limit (linked to net worth) was also progressively raised,” Mitil Chokshi, senior partner, Chokshi & Chokshi LLP was quoted saying in the report.
In addition, the report said that RBI officials also indicated towards a more pragmatic approach on inbound investment by overseas companies that have Indian shareholders.
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