The Reserve Bank of India has increased its strictness in the matter of information about foreign funding of Indian banks and companies. Due to which the difficulties of banks and companies have started increasing. banks, business houses and reserve Bank of India (RBI) are in a quandary, with the RBI taking a hard look at the past reported lapses on financing of foreign subsidiaries and joint ventures by corporates. The central bank says that foreign transactions will be allowed to companies only after the previous report defaults have been identified and fines have been paid.

In the last meeting, senior RBI officials had turned down a proposal by banks to allow corporates to transfer funds behind an escrow account mechanism, which would facilitate payment of the penalty if the penalty is levied. But RBI has put its foot down on this matter.

Regulator will review the data

RBI says that banks should look at the old records of cross-border transfers to find out all the reporting lapses, after which the regulator will review the data to fix the late deposit fee and prepare a code. Only after this a company will be allowed to send money abroad. In some cases, many problems arise, due to which the industry is inconvenienced.

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According to sources, till now the regulation was taken lightly by the banks as well as the companies. Most banks did not sensitize their customers about the reporting deadline, while corporates were either unaware or were under the impression that delay in submission of forms on bank transfer resulted in overdue export earnings and over-invoicing/under-invoicing. As such the violations matter more.

There will be no foreign investment related transactions

The reporting process for foreign investment related transactions is still manual. (Unlike in the case of foreign direct investment, or FDI transactions, the associated LSF (Late Deposit Fee) process for foreign investment transactions is also manual. RBI is taking unusually long time to generate conditional acknowledgment email for payment of LSF. The challenge before Indian entities and resident individuals is that they cannot undertake any further foreign investment related transactions such as further infusion of capital or debt, issue of corporate guarantees, sale of shares of foreign entities, etc., till the completion of the LSF process.

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AD bank will not provide external transaction facility

AD Bank branches maintain a party-wise record for all foreign wholly owned subsidiaries and JVs of corporate customers for onward submission to RBI. One clause in the ‘Foreign Currency Management (Foreign Investment) Guidelines, 2022’ issued last August that perhaps escaped the attention of most corporates, restrictions on further financial commitments or transfers, AD Bank will not facilitate any outward transactions .