RBI [The Reserve Bank of India] is the Central Banking institution of India, which controls the issual and supply of the Indian rupee. RBI issues guidelines which are required to be followed by other banks. Since RBI is the supreme bank in India, specific approval of RBI is required for various transactions specified under the Banking Regulation Act, 1949 or FEMA, 1999 [Foreign Exchange Management Act, 1999].
1. Prior Approval under the Banking Regulation Act, 1949
- Acquisition of shares or voting rights (to the extent of 5% or more of the paid-up share capital) in Private Sector Banks.
- Fresh acquisition of shares or voting rights (in excess of 10%) by existing shareholders.
- Procedure for above 2 cases- Make an application to RBI along with Declaration in Form A, RBI shall ask for recommendations from the concerned bank and based on the recommendations received, approve the application.
- Making changes in the maximum permissible number of directors.
- Appointment or reappointment or termination of appointment, remuneration of a Chairman, Managing director, Whole-time director, Manager, Chief executive officer (CEO), or otherwise;
- Procedure for the above 2 cases- Submit forms specified for these purposes like Form B and Form D.
- Setting up a Subsidiary company to undertake various types of banking business approved by the Central Government of India like –
- Carrying on business exclusively outside India.
- Undertaking equipment leasing, hire purchase business and factoring services (Prior approval is not required in case of banks undertaking these activities departmentally and comply with certain guidelines. However, they are required to report the nature of activities undertaken along with the branch names, to RBI).
- Undertaking Primary Dealership (PD) business following the prudential norms,
- Procedure: For in-principle approval, Banks should send an application to the Chief General Manager, Department of Banking Operations and Development (DBOD), Reserve Bank of India, Central Office, World Trade Centre, Cuffe Parade, Mumbai-400005. After obtaining DBOD approval, banks may make an application to the Chief General Manager, Internal Debt Management Department, Reserve Bank of India, 16th Floor, Central Office Building, Fort, Mumbai-400 001 for authorization for undertaking PD business departmentally.
- Undertaking a mutual fund businesses.
- Introducing debit cards with offline authorization and/or settlement (only for banks with a net worth of ₹100 crores and above)-
- Procedure- Submit the details on mode of authorization and settlement, authentication method employed, the technology used, tie-ups with any other agencies or service providers, along with Board resolution.
- Undertaking an insurance business,
- Procedure- Submit application with details along with Board resolution.
- Undertaking pensions fund management;
- Procedure- Submit application with details along with Board resolution to the Department of Banking Operations and Development, Reserve Bank of India, World Trade Centre, Centre-I, Mumbai-400 005.
- Engaging in financial services other than specified;
- Procedure- Submit application with details along with Board resolution to the Department of Banking Regulation, Central Office, Reserve Bank of India.
2. Prior Approval under FEMA, 1999:
1. Proposal for making Overseas Direct Investment (ODI) under approval route:
- Procedure- Applicant should approach the designated Authorized Dealer (AD) with the proposal which shall be submitted to RBI after due scrutiny and with specific recommendations of the designated AD bank along with supporting documents to the following address: The Chief General Manager, Reserve Bank of India, Foreign Exchange Department, Overseas Investment Division, Amar Building, 5th Floor, Sir P. M. Road, Fort, Mumbai 400001.
Below mentioned points shall not be applicable where the payment is made out of funds held in Resident Foreign Currency (RFC) Account of the remitter and for use of International credit cards while outside India:
2. Individuals availing foreign exchange facility for the below-mentioned purposes over and above the specified limit of USD 2,50,000-
- Private visits to any country (except Nepal and Bhutan).
- Gift or donation.
- Going abroad for employment.
- Maintenance of close relatives abroad.
- Travel for business, or attending a conference or specialised training or for meeting expenses for meeting medical expenses, or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment/ check-up.
- Expenses in connection with medical treatment abroad.
- Studies abroad.
- Any other current account transaction
3. Remittances by persons other than individuals-
A. Donations exceeding 1% of their foreign exchange earnings during the previous 3 financial years or USD 5,000,000, whichever is less, for –
- Creation of Chairs in reputed educational institutes,
- Contribution to funds (not being an investment fund) promoted by educational institutes; and
- Contribution to a technical institution or body or association in the field of activity of the donor Company.
B. Commission per transaction, to agents abroad for sale of residential flats or commercial plots in India exceeding USD 25,000 or 5% of the inward remittance, whichever is more.
C. Remittances exceeding USD 10,000,000 per project for any consultancy services in respect of infrastructure projects and USD 1,000,000 per project, for other consultancy services procured from outside India.
D. Remittances exceeding 5% of investment brought into India or USD 100,000 whichever is higher, by an entity in India by way of reimbursement of pre-incorporation expenses.
Procedure for (ii) & (iii)- Submit application with details in specified Forms.