RBI’s prior approval required to open BO in India

The Dollar Business Bureau

The Reserve Bank of India (RBI) on Thursday said that the applicants from Bangladesh, China, Pakistan and four other countries will need its prior approval for opening a branch office (BO) or project office (PO) or a liaison office (LO) in India.

While releasing new guidelines for international entities for opening BO/LO/PO in the country, RBI said that other regions and countries that require the bank’s prior approval are Afghanistan, Iran, Sri Lanka and Hong Kong or Macau.

The Central Bank’s approval will also be required, if the application is for opening a BO/LO/PO in Andaman and Nicobar Islands, Jammu and Kashmir and in the North East region.

The approval of RBI is also required if the entity is a non-profit organization, a non-government organisation (NGO), or a department/agency/body of a foreign government.

In its circular, RBI said its prior permission will be required if the applicant’s principal business comes under four sectors: (i) defence; (ii) telecom; (iii) private security; and (iv) information and broadcasting.

However, the Bank has highlighted that in the case of an application for opening a project office related to defence sector, no additional reference or permission of the Government will be required, if the applicant has been given a contract or has entered into a deal with the Defence Ministry or Defence Public Sector Undertakings or Service Headquarters.

"There will be no need of any permission from RBI, only for such cases," the central bank specified.

The RBI also put forth the following conditions for non-resident applicants:

• It stated that the non-resident applicants should be financially sound.
• If the entity is not sound financially but is a subsidiary of other group/company then it may file a Letter of Comfort (LOC) issued by its group/parent company, subject to the condition that the group/parent company fulfills the prescribed norms for net worth and profit.

The validity of the applications will be considered by the RBI only on the following grounds:

• The validity of an LO is for a three-year period, excluding the Non-Banking Finance Companies (NBFCs) and entities involved in construction and development sectors, the validity for whom is only for two years.
• The validity of a PO is for the duration of the project