What changed
First, for performance guarantees, only 50% of the amount will be considered for computing financial commitment within the 400% net worth limit, and the contract completion period is the guarantee validity. Second, Indian promoters with at least 51% stake in an overseas JV or a WOS can now write off capital and receivables (like loans, royalty) up to 25% of equity investment—listed companies under Automatic Route, unlisted under Approval Route. Third, disinvestments involving write-off now have revised reporting and documentation requirements, including inclusion of listed Indian promoter companies with net worth less than Rs.100 crore and investment not exceeding USD 10 million under Automatic Route.
What it means for you
Banks must update their ODI monitoring systems to reflect the reduced reckoning of performance guarantees, easing the financial commitment burden for corporates. The write-off flexibility allows Indian companies to restructure overseas entities without winding up, reducing non-performing asset risks for lenders. Banks need to ensure proper documentation and reporting within 30 days for write-offs, and watch for invocation breaches that require RBI approval.
What you must do
- Update internal systems to reckon only 50% of performance guarantees toward the 400% net worth ceiling for ODI.
- Advise corporate clients on the new write-off limits: 25% of equity investment for listed (Automatic Route) and unlisted (Approval Route) companies.
- Ensure write-off/restructuring cases are reported to RBI through your bank within 30 days with required documents for scrutiny: a certified copy of the overseas entity's balance sheet showing the loss, and five-year projections highlighting benefits to the Indian company from the write-off.
- Remind clients that if a performance guarantee invocation breaches the ceiling for financial exposure of 400% of net worth, prior RBI approval is needed before remitting funds from India on account of such invocation.
Who it affects
Indian corporates with overseas JVs or WOS, AD Category-I banks handling ODI transactions, Listed and unlisted Indian companies investing abroad
How is the 50% reckoning of performance guarantees calculated?
Only half of the performance guarantee amount is counted toward the Indian party's total financial commitment, which is capped at 400% of net worth. The guarantee's validity period is the contract completion time.
Can unlisted companies write off capital without RBI approval?
No, unlisted companies must seek approval under the Approval Route for write-offs up to 25% of equity investment. Listed companies can do so under the Automatic Route.
What documents are needed for write-off reporting?
A certified copy of the overseas entity's balance sheet showing the loss, and five-year projections highlighting benefits to the Indian company from the write-off.